The Complete Guide to Above-The-Line Deductions

Above-the-Line deductions, or adjustments to income, could help you save money on taxes.  Taking these deductions reduces your taxable income and so reduces your tax bill.  And the beauty is you can take these deduction even if you do not itemize.

Furthermore, by using these deductions, you can reduce your adjusted gross income (AGI).  And by doing so, make it possible to claim even more deductions and credits because the lower your AGI, the more tax incentives such as credits become available to you..

Here are ALL the above-the-line deductions you should be aware of:

Moving Expenses

Before the Tax Cuts and Jobs Act of 2017, you could have deducted your moving expenses if you had had to move for your job.  Now, however, this tax break only applies to people who are on active duty in the military.  Hopefully, after 2025 most people will be able to deduct these again.

Educator Expenses

If you are a K-12 teacher, instructor, counselor, principal, or aide and have worked at least 900 hours in a given tax year, you are eligible for this deduction.

Qualified expenses include supplies, equipment, etc. that you buy for your classroom as well as professional development workshops you attend that relate to your subject or students.  The deduction is capped at $250 or $500 for joint filers who are both educators.

Student Loan Interest

Student must be you, your spouse, or dependent, and be enrolled at least half-time in a program at an eligible educational institution.

You may deduct the student loan interest you pay as long as your modified adjusted gross income (MAGI) is less than $70,000 if filing single, etc. or $140,000 if filing jointly.  

This deduction begins to fade out as your income increases.  See the table below.  The amount you can deduct is capped at $2,500.

In addition to regular student loan interest, loan origination fees, capitalized interest, credit card debt interest (if used solely to pay for educational expenses), and refinanced/consolidated loan interest can also be deducted. 

You cannot take this deduction if you file your taxes married filing separately and if either you or your spouse can be claimed on someone else's taxes if filing jointly.  You cannot deduct interest from loans that you were not legally obligated to pay the interest such as federal loans that are in deferment.

*MAGI is the AGI on line 8b of the 1040 IRS form.  All numbers shown in this table are for the 2019 tax year.

Tuition and Fees

If you paid for qualified educational expenses from an eligible institution, you can take this deduction.  You will need to use Form 8917 to take and calculate your deduction.  There is a maximum $4,000 deduction and can be used for undergrad and graduate education.

Like the interest deduction, there is an income limit and phase out as well.  For individuals making between $60,000 and $80,000 the deduction begins to phase out for the 2019 tax year (S130,000 - $160,000 for married filing jointly). If you make $80,000 or more, you do not qualify for the deduction ($160,000 for joint filers).

Business Expenses

Equipment, supplies, insurance, rent, utilities, vehicle expenses, depreciation, and miles, and even legal fees can be deducted from your taxes if you are a fee based state or local government official, reservist, disabled employee with impairment related expenses, or a performing artist.

*Regular business owners with ordinary and necessary expenses should take their deductions below-the-line (or itemized later).

Self-Employed Deductions

If you are self-employed, you can deduct ½ of your self-employment tax as well as contributions made to your SEP, SIMPLE or other qualified retirement account.  Your health insurance premiums are also deductible for you and your family members, including children up to 27 years of age.

To deduct health insurance however, you would have had to have received income from your business or the business you have part ownership in.  Also, if you are eligible to be on your spouse’s insurance plan, those months are not deductible.

See Publication 535 for more information about Business and Self-Employment deductions.

Medical/Health Savings Account (HSAs/MSAs)

Individual contributions made to your HSA are above-the-line deductions that you should take advantage of if you can.  Use Form 8889. 

The Archer Medical Savings accounts are not used much anymore but I thought I’d include it in here anyway.  If you do have an MSA, you will need Form 8853.

Contributions to Your IRA

Contributions made to your IRA account are deductible so long as you or your spouse has earned income for the year.  These contributions are deductible up to $6,000 for people under 50 and $7,000 for anyone 50 and over.  Broker’s fees may also be deductible.

Note:  If you make nondeductible contributions to your traditional IRA, you must report it with Form 8606.

Penalties on Early Withdrawals of Savings

If you withdraw funds from savings bonds or CDs before its maturity date, you will have to pay a penalty.  As long as it is from a savings account, these penalties can be deducted from your gross income.  Early withdrawal penalties from IRAs etc. do not count.

Alimony

If you have been making alimony payments for a divorce or separation agreement made before December 31, 2018, you may qualify for the deduction.  However, if your divorce or separation agreement was made after 2018 you do not qualify for this deduction. 

This also includes people who have had their agreements changed after 2018 to state that the alimony payments are not deductible for the payer and also, not includible as income for the receiver.

~ Note:  There are some other miscellaneous deductions such as jury pay and rental property expenses.  Look over instructions for Form 1040 carefully.

All in All