Taxable compensation can be salary, wages, commissions, alimony payments and self-employment income.
It does not include things like interest and dividend income; rental income: social security income; and pension or annuity income.
Self-employment income is the net self-employment income after deducting business expenses -- not the gross revenue from the business.
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IRA Deduction Limits For 2014 and 2015
The IRS has released the 2015 limits and they remain unchanged and are the same as 2014 amounts as stated above.
Your IRA deduction does not include any part of a tax-free rollover to your IRA account. For 2014 and 2015, you also must have at least $5,500 or $6,500 in taxable compensation to be able to contribute the maximum amounts.
The traditional Individual Retirement Account (IRA) contribution and deduction limit is $5,500 for 2014. If you are at least age 50 or older before the end of 2014, the limits are increased to $6,500.
Even though you may legally contribute to your IRA, your income must not be over certain amounts in order to deduct the entire amount on your 2014 Federal Income Tax Return.
Income for these purposes is defined as Modified Adjusted Gross Income.
■ If you and your spouse; or if you are single; or if you claim head of household status and were not covered by a retirement plan at your work, there are no income restrictions. Your entire IRA contribution is tax deductible.
■ If both you and your spouse are covered by a retirement plan, your IRA deduction will be phased-out if you make more than $96,000 on a joint tax return in 2014. If you make $116,000 or more on a joint tax return, you receive no IRA deduction.
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For 2015, the above $96,000 limit is increased to $98,000 and the $116,000 limit is increased to $118,000.
For 2015, the $60,000 limit is increased to $61,000 and the $70,000 limit is increased to $71,000.
For 2015, the $181,000 limit is increased to $183,000 and the $191,000 limit is increased to $193,000.
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■ If one spouse is covered by a retirement plan and the other is not covered by a retirement plan, your IRA deduction is not reduced until your income exceeds $181,000 in 2014. At $191,000, your IRA deduction is completely phased out.
■ If you are single or claim head of household status and are covered by a retirement plan, your IRA deduction is reduced when your income exceeds $60,000 in 2014 and completely eliminated when you hit $70,000.
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