Yet, other tax advantages remain, and the laws still allow anyone to contribute to an IRA, making it a popular investment tool. It is difficult to understand the advantages an IRA offers without understanding a few basics about federal income tax law. Generally, a person calculating the amount of tax she or he owes to the government first determines the amount of income received in the year. This is normally employment income. Tax laws allow the individual to deduct from this figure amounts paid for certain items, such as charitable contributions or interest on a mortgage.
Some taxpayers choose to take a single standard deduction rather than numerous itemized deductions.
In either case the taxpayer subtracts any allowable deductions from yearly income, and then calculates the tax owed on the remainder. Various plans may constitute employer-maintained retirement plans, such as standard pension plans, profit sharing or stock bonus plans, annuities, and government retirement plans. The amount contributed during the taxable year may then be taken as a deduction. A married taxpayer who files a joint tax return with a spouse who does not work may deduct contributions toward what is called a spousal IRA, or an IRA established for the spouse's benefit. Taxpayers who contribute to IRAs usually realize tax benefits even when the law does not permit them to take deductions.