Increase Your Tax Refund With Above-the-Line Deductions

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Increase Your Tax Refund With Above-the-Line Deductions

Every year, many Americans meticulously document their charity donations, mortgage interest, property taxes, and other costs in the hopes of exceeding the monetary level that would allow them to claim itemized deductions that exceed the basic deductions. However, in addition to such itemized deductions, several additional deductions may be claimed even if the taxpayer is unable to itemize. These are referred to as above-the-line deductions.

What Are Above-the-Line Deductions?

Above-the-line deductions are costs that are subtracted from an individual’s adjusted gross income (AGI).These are distinct from itemized deductions, which are monetary amounts subtracted from the calculated AGI. Above-the-line costs are shown by the following examples:

  • Domestic Production Activities: Under certain situations, up to 9% of activities relating to the domestic production of specific products or services, such as engineering or architectural concerns, may be deducted.
  • Contributions to Retirement Plans: All contributions to conventional IRAs and qualifying plans such as 401(k), 403(b), and 457 plans are tax deductible. Taxpayers with incomes over a specific threshold who contribute to both a regular IRA and a qualified plan face a gradual phaseout of their IRA contributions.
  • Contributions to HSAs and Archer Medical Savings Accounts are completely deductible as long as taxpayers do not have access to any kind of group insurance coverage, including that provided by fraternal or professional groups. A eligible high-deductible health insurance coverage must also be purchased.
  • Health insurance premiums: For self-employed taxpayers, the cost of premiums paid for individual health insurance plans, including high-deductible policies, is entirely deductible. The taxpayer, like HSAs and MSAs, does not have access to group health care.
  • Self-Employed Business Expenses, SE Tax: Schedule C deducts almost any expenditure connected to the operation of a sole proprietorship. Rent, utilities, the cost of equipment and supplies, insurance, legal costs, staff pay, and contract labor are all included. This amount also includes one-half of the self-employment tax due on this income.
  • Alimony: Payments paid to a spouse in accordance with a divorce decision that are not classed as child support are often considered alimony. Payments of this sort are tax deductible unless they are “paid under a divorce or separation agreement completed after December 31, 2018” or were changed in specific ways after that date. Whether your divorce agreement precedes that date, consult with your accountant to see if alimony payments are still deductible. This modification was made as part of the Tax Cuts and Jobs Act of 2017.
  • Educator Expenditures: Unreimbursed qualifying expenses of up to $250 ($500 for joint filers if both fall into this category) are included. Teaching materials, books, and other typical costs frequently linked with education are examples of qualified expenses. Educators who teach grades K-12 and work at least 900 hours per year are eligible for this deduction.
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  • Penalties for Early Withdrawal: Any penalties paid for early withdrawal of funds from a CD or savings bond recorded on Form 1099-INT or 1099-DIV might be deducted.
  • Student Loan Interest: Up to a specific amount of interest paid on federally subsidized student loans is deductible, providing the taxpayer’s income does not exceed the yearly restrictions. For 2019, the single, head-of-household, or qualified widower filing maximum is $85,000, while the joint filing limit is $170,000.
  • Tuition and Fees: In certain situations, taxpayers might be better off deducting tuition and other educational expenditures paid to approved educational institutions rather than claiming an educational tax credit.

The Bottom Line

For qualifying taxpayers, any or all of these deductions may be claimed in addition to itemized deductions. Of course, there are rules and constraints that must be followed. Read the instructions for Form 1040 on the IRS website or see your tax professional for further information on above-the-line deductions.

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