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 tax return. You can see a complete rundown of what’s changed by looking at pages 84-91 on the 1040 Instruction Guide.
To summarize, here’s what you can still deduct:
- Educator expenses (Line 11): 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 12): 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 13): You can deduct a portion of your HSA contributions for the year. You will need to also provide form 8889.
- Moving expenses (Line 14): Moving expenses changed under the TCJA and now only apply to active members of the military.
- Part of your self-employment tax (Line 15): 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 16): Contributions made into your SEP-IRA or Keogh plan can be deducted.
- Health insurance premiums (Line 17): 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 18): You can write off early withdrawal fees from CDs and savings accounts.
- Alimony payments (Line 19): You’re able to deduct court-ordered money you’ve paid to a spouse or former spouse if you made payments to your spouse or former spouse under a divorce agreement entered on or before December 31, 2018. If you entered into your divorce or separation agreement after December 31, 2018, you can’t include alimony payment and you can’t deduct child support payments.
- Traditional IRA contributions (Line 20): Contributions you make to a traditional IRA may be fully or partially deductible, depending on your filing status and income. Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA. Separately, Roth IRAs are non-deductible, and your deductions may be limited based on your filing status and income. 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 21): If you paid interest on student loans, you may be able to deduct a portion of your interest payments on your return.
- Archer MSA deduction (Line 23): For contributions made by you to an Archer MSA (Medical Savings Account)
- Other adjustments (Line 24): Consists of adjustments like jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury, nontaxable amount of the value of Olympic and Paralympic Medals, and many other adjustments. The comprehensive list can be found on the latest Schedule 1.
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.