Retirement Contributions

• Retirement contributions to a qualified retirement plan reduce your taxable income. Retirement accounts are qualified under the Employee Retirement Income Security Act (ERISA). These retirement plans normally allow contributions on a pretax or tax deductible basis. Some plans specify special contributions, designated as "Roth" contributions, and only allow after-tax contributions, however. Certain IRAs, 403b plans and 401k plans are examples of retirement accounts that allow these Roth contributions. Roth contributions do not lower your taxable income now but may reduce it when you retire since they offer future withdrawals that are tax free.
  
  

Business Expenses

• Business expenses reduce your current income tax liability. Expenses for business allow you to put money back into your business and increase your net income by doing so. Business expenses are any expenses that are used in the normal course of operating your business.
  
  

Capital Losses

• When you invest money, there is the chance you will lose it. While making money may be the ultimate goal, losing money allows you to claim a capital loss. A capital loss reduces your taxable income for the year. What's more, if your losses cause your income to go negative when calculating your tax liability, you may carry any negative amounts forward to the next tax year.
  
  

Itemized Deductions

• Itemized deductions on your tax return reduce your taxable income. These expenses might include nonreimbursed medical expenses, interest on a home mortgage loan and work-related expenses not reimbursed by your employer. These items are deducted off of your gross income in lieu of taking the standard deduction for the year.