Above-the-Line Deductions

There are both itemized and above-the-line deductions. They will affect your Adjusted Gross Income in different ways. In this article, we will go over the basics of above-the-line deductions.

Adjusted Gross Income

Before you can understand above-the-line deductions, you must understand Adjusted Gross Income. Your AGI includes your combined income from wages, business and rental income, capital gains, and unemployment. The number is used for many calculations on your tax return. For example, you are only able to deduct medical expenses if they exceed 7.5% of your AGI. Every dollar that reduces your AGI will reduce your taxable income.

The Basics

These deductions are adjustments to your taxable income. These deductions are subtracted from your income before your AGI is calculated. You can take these deductions even if you take the standard deduction and do not itemize.

Available Deductions

Here are some examples of the above-the-line deductions available to you:

• Self-Employment Deductions: These include deductions for health insurance, the deductible portion of self-employment tax, and contributions to self-employed retirement plans (like SEP and SIMPLE IRAs).
• Education Deductions: This could include student loan interest on a qualifying loan for yourself, your spouse, or a dependent. It can also include education expenses like supplies purchased by a teacher for their classroom.
• Moving Expenses: For certain members of the Armed Forces moving expenses are deductible.
• Deductions: These could include health savings account contributions and penalties paid on early withdrawal from a savings account before it matures.

Taking Above-the-Line Deductions

If you think you qualify for above-the-line deductions, talk with your tax preparer about the best way of going about implementing them.

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