What are Above the Line Deductions?

Above the line deductions are federal tax deductions that the Internal Revenue Service (IRS) allows you to subtract from your gross income. When you subtract them, you get the adjusted gross income; the income that you will actually be taxed on. Below the line deductions allow you to further decrease your taxable income, but they income-sensitive. While above the line deductions also have limits, they are based on the value of the deduction rather then income, so more likely to qualify for above the line deductions than below line deductions.

Understanding Above the Line Deductions

The income taxes are taxes that are levied against your earnings. Technically speaking, the federal government has a right to levee taxes on every cent you earn. However, it also recognizes that at least some of that income goes towards expenses that will help you make a better life for yourself and, hopefully, earn more income. It also wants to encourage you to do things that will help your community and the country as a whole. This is why IRS introduced deductions as the way to decrease your tax burden.

The above the line deductions in particular are designed to help as many people as possible. That said, some of those deductions are designed strictly for individuals, while others are designed for business owners and/or self-employed individuals. You can use as many deductions as you qualify for, and you are not required to itemize your expenses. However, you should remember that, if you forgot a deduction, IRS is under no obligation to check your paperwork and apply it for you. This is why you must check all the above-the-line deductions carefully. If you have any doubt, consult an accountant or a qualified tax professional.

List of Above the Line Deductions

The above the line deductions include the following:

  • Sales loss deduction: if you sold an object or a property for less than you doubt it, you can use the difference as an above the line  deduction. This deduction also applies if you exchanged an object or a property for a less valuable object or a property.
  • Retirement savings deduction: the income you set aside for retirement under any private or employee-based retirement plans can be used as a deduction.
  • Alimony deductions: any alimony payments you made qualify as deductions.
  • Clean-fuel deduction: if you drive a hybrid or an alternatively powered vehicle, or if you use this vehicle for your job/business, you are qualified for this deduction.
  • Higher eduction expenses deduction: you can deduct your tuition and any mandatory fees you had to pay when you enrolled in a federally recognized university (be it a public university or a private university). Your student loan payments are deducted separately.
  • Discrimination lawsuit deduction: if you filed a lawsuit alleging discrimination in any sense of the word, you can deduct attorney fees and court costs. The deduction also applies if you are making those payments on another person's behalf.
  • Health Savings Account deduction: if you are enrolled in a Health Savings Account (HSA) savings plan, all of your contributions to it are tax-deductible.
  • Moving expenses deduction: if you are moving to another city to start a new job or seek a new job, you can deduct the packing and shipping costs for your belongings and costs for travel and lodging. Your dining expenses can't be deducted.
  • Self-employment deduction: if you are self-employed, you can deduct half of your employment tax.
  • Self-employment health insurance deduction: if you are self-employed, you can deduct the money you spent on buying yourself health insurance. The same is true if you bought health insurance for your spouse and/or dependents.
  • Qualified employees tax: if you are a performing artist, a member of the National Guard, the member of military reserves or fee-based government official, you can deduct all of your performance/job-related expenses.
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