Above The Line Deductions

No one wants to pay more taxes to the federal government than they absolutely are required to pay.  The amount of taxes you have to pay is determined according to your income.  Therefore, your goal should be to reduce your taxable income as much as possible on your tax return form, not by actually reducing your take home income.  The way to accomplish this is to claim as many above the line deductions as possible when filing your tax return. 

When you claim an above the line deduction, it acts to decrease your income on your tax form.   In fact, that is why they are named above the line.  These types of deductions are claimed on your tax form, right above the very last line on the page, which is your adjusted gross income.  That means these deductions are the last amount subtracted from your income to reduce it, effectively reducing the amount of taxes you have to pay. 

The following expenses are just a few above the line deductions which you may claim.  There are many more deductions that are allowed.  As with any matter related to taxes, it is always best to consult a qualified tax professional to be sure you are getting all the above the line deductions that you personally qualify for.      

• Relocation expenses, if your move was work related.
• Self-employment taxes paid to Medicare and Social Security, half of which may be deducted.
• Retirement saving plan contributions for those that are self-employed. 
• Health insurance premiums for the self-employed.  This included the premiums to cover you, your spouse and dependants.  Payments towards policies for long-term care are also deductible under this category. 
• Penalties paid to withdrawal early out of savings.  The finance manager of this type of account will send you the 1099-INT or the 1099-OID form, which includes the penalty for early withdrawal.
• Alimony payments.  You may deduct alimony payments in the event you are divorced.  If you do so, then you are required to include the social security number of the ex-spouse receiving the alimony.  Failure to include the social security number revokes your ability to deduct alimony.   
• Contributions to a traditional IRA may be deducted for those that are self-employed.
• Paid interest on a student loan.  You may deduct a maximum of $2,500 paid towards interest on a student loan for those that file as single and have an income of less than $65,000, or $135,000 for those that file a married joint return.  
• Pay for jury duty as long as it was given to your current employer.

You may claim all of these deductions by filing with the 1040 form, as long as you qualify to take them.  If you prefer to file with slightly shorter 1040A form, then you may still claim some of the deductions, such as penalties paid for early withdrawals, paid interest on student loans, IRA contributions, and pay for jury duty.  However, you will probably lose out on being able to claim some of the other deductions, if you qualify for them, when you use only the 1040A form.