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What Are Above-the-Line Deductions?

SmartAsset: What Are Above-the-Line Deductions?

If you’re planning on using a tax break to minimize your tax bite, keep in mind that deductions come in different shapes and sizes. There’s the standard deduction that any taxpayer can claim every tax year just for filing taxes. And there are itemized deductions that you can write off instead of taking the standard deduction. There are also above-the-line deductions. Here’s everything you need to know about above-the-line deductions, including how they work and who can take advantage of them.

A financial advisor can walk you through different tax strategies for your financial plan.

Above-the-Line Deductions: The Basics

All tax deductions reduce your taxable income to some degree. An above-the-line deduction is a tax break that lowers the amount of tax you have to pay by chipping away at your gross income. Also known as adjustments to income, these deductions remove certain expenses from your gross income so that you’re left with your adjusted gross income.

The best thing about above-the-line deductions is that you can claim these tax breaks without itemizing your deductions. Even if you’re taking the standard deduction, you can still use adjustments to income to shrink your tax bill.

How to Claim Above-the-Line Deductions

SmartAsset: What Are Above-the-Line Deductions?

In order to claim an above-the-line deduction, you simply need to complete your tax return. Above-the-line deductions are easy to spot. You can find them above the line where you’re required to enter your adjusted gross income.

If you’re filing a standard tax return with Form 1040, there are about a half dozen above-the-line deductions that you may be eligible for. While claiming above-the-line deductions is fairly straightforward, you may need to attach other tax forms in order to get credit for them. For example, in order to get a deduction for contributing to a health savings account (HSA), you’ll need to complete Form 8889 and attach it when you file your taxes. Because of the format of the latest 1040, you will also need to attach certain schedules that you may not have had in previous years.

Common Above-the-Line Deductions 

Some common above-the-line deductions that you can take are for educator expenses (up to $300 in 2022), contributions to an IRA (Saver’s Credit) and there’s a deduction for student loan interest payments. Another important deduction is for the self-employment tax. For the 2022 tax year, you can also claim a deduction for qualified business income. It’s worth up to 20% of the net amount of income, gains, deductions or loss from any qualified trade or business. Only things included in taxable income will count toward this deduction.

Bottom Line

SmartAsset: What Are Above-the-Line Deductions?

Claiming as many above-the-line deductions as you can is an easy way to cut your income tax bill. Just keep in mind that certain deductions are phased out for wealthy tax filers or unavailable to married couples who file separately. That’s why it’s best to review the rules for taking tax breaks before deducting anything on your tax return.

Tax Planning Tips

  • A financial advisor can help you optimize a tax strategy for your financial plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset evaluated common tax filing services to find the best online tax software for your specific situation.

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