Above-the-line deductions are expenses the IRS allows you to deduct directly from your gross income. Your gross income – above-the-deductions = your adjusted gross income (AGI). Taking advantage of above-the-line deductions is one way to reduce the amount of income tax you have to pay.
Above-the-line vs. below-the-line deductions
If “above-the-line” deductions are everything you can deduct before adjusted gross income, then “below-the-line” deductions are everything you deduct after adjusted gross income. (Therefore, adjusted gross income is the “line” in both names).
Above-the-line deductions are things like educator expenses, moving expenses, contributions to savings accounts (there’s a full list below). Below-the-line deductions are the everyday expenses you’re most familiar with: business mileage, rent, office supplies.
The standard deduction is also below-the-line. You can take above-the-line deductions whether you use standard deductions or itemized deductions.
You subtract below-the-line deductions from your AGI to get your taxable income.
A list of above-the-line tax deductions
If you’ve been itemizing above-the-line deductions for years now, understand that the recent implementation of the Tax Cuts and Jobs Act (TCJA) has changed what can be deducted above-the-line on your 2019 tax return. You can see a complete rundown of what’s changed by looking at pages 84-91 on the 1040 Instruction Guide for 2019.
To summarize, here’s what you can still deduct:
Educator expenses (Line 10): If you’re an educator or run an education-related business, you can deduct as much as $250 for classroom expenses. That number jumps to $500 if you’re married and you’re both educators.
Certain business expenses (Line 11): National Guard and military reservists who’ve traveled more than 100 miles from home in a professional capacity during the tax year can write off travel expenses. Professionals working in performing arts and fee-basis public officials can also write off some business expenses.
Contributions to health savings accounts (Line 12): You can deduct a portion of your HSA contributions for 2019. You will need to also provide form 8889.
Moving expenses (Line 13): Moving expenses changed under the TCJA and now only apply to active members of the military.
Part of your self-employment tax (Line 14): If you’re a small business owner, this is a big one. Part of your taxes that go towards Medicare and Social Security can be deducted.
Retirement plan contributions for the self-employed (Line 15): Contributions made into your SEP-IRA or Keogh plan can be deducted.
Health insurance premiums (Line 16): If you’re self-employed, you may be able to deduct 100% of the money you’ve spent on health insurance premiums. And this doesn’t just apply to you—it also applies to your spouse and dependents as well. Other medical expenses are below-the-line deductions.
Early withdrawal penalties (Line 17): You can write off early withdrawal fees from CDs and savings accounts.
Alimony payments (Line 18): You’re able to deduct court-ordered money you’ve paid to a spouse or former spouse, but you can’t deduct child support payments.
Traditional IRA contributions (Line 19): There are some limitations with regards to IRA contributions. Roth IRAs are non-deductible, and your deductions could be limited depending on you or your spouse’s retirement plan. Visit the IRS website to see what factors may influence how much you can deduct from your traditional retirement account contributions.
Student loan interest (Line 20): If you paid interest on student loans, you may be able to deduct a portion of your interest payments on your 2019 return.
How do you claim above-the-line tax deductions?
You can claim above-the-deductions on lines 10-20 on Form 1040.
Deductions are just one way to reduce your tax burden. Lower your bill with help from our big list of small business tax credits.