You may have heard the term “above-the-line” deduction and been totally confused. After all, aren’t all deductions treated the same by the IRS? Nope! Not by a long shot! The IRS treats different types of deductions vary differently, and there are even different parts of your 1040 when it comes to totaling deductions.
An “above-the-line” deduction is taken before your total adjusted gross income (AGI) is calculated. Often called adjustments to income, these deductions are taken before (and in addition to) the standard or itemized deductions. The “line” being referenced in the term above-the-line deduction is the line drawn when totaling your AGI; since these deductions factor into the AGI, they’re “above the line.” Common above-the-line deductions include alimony payments, student loan interest, relocation expenses when you move for business purposes, and others.
The distinction between above- and below-the-line deductions matters because your AGI impacts how much you can deduct for many itemized expenses. The most common example is the health care expense deduction: you can deduct eligible medical and dental expenses that exceed 7.5% of your AGI. Because the above-the-line deductions reduce your AGI, the more above-the-line deductions you have, the more of your medical/dental expenses you may be able to deduct.
Wondering about other tax terms? In a tangle over confusing tax terminology? Taxation Solutions, Inc. is here to provide whatever tax help we can. Specializing in tax relief services, our team has more than 40 years of experience helping taxpayers just like you. Call now to find out how we can serve you!