Above-the-Line Deductions: Don't Forget About Those

Above-the-line deductions can save you money on your taxes--if and only if you remember to claim them. If you (or your tax preparer) forget to claim above-the-line deductions, you end up overpaying your taxes.

It happens every day.

What "Line" Are We Talking About Here?

The line in question is your Adjusted Gross Income, or AGI. Here is a short article about AGI ADD LINK and its importance.

Adjusted Gross Income is a sort of halfway mark for your tax return; after you've added up your total gross income but before you've figured your taxable income.

Above-the-line deductions are taken before you arrive at your Adjusted Gross Income. By reducing your Adjusted Gross Income, above-the-line deductions can reduce your income tax.

Above-the-Line Deductions Are Constantly Changing

You know how Congress keeps changing the tax code every year? Above-the-line deductions are a main area of change. That's one reason why so many taxpayers (and tax preparers) forget to claim these valuable tax deductions.

In tax year 2009, for example, Congress has added sales tax on the purchase of a new vehicle as an above-the-line deduction.

The $250 for educators' classroom expenses LINK and the self-employed health health insurance LINK deductions are two other examples of above-the-line deductions added by Congress in recent years to satisfy demands from certain interest groups.

The point for you is: keep a sharp eye out.

Common Above-the-Line Deductions

Common above-the-line tax deductions include:

• Traditional IRA contributions
• Student loan interest
• One half of self-employment tax
• Self-employed health insurance
• Tuition expenses paid for higher education
• Moving expenses

If you paid any of the above expenses during a particular year, do yourself and check your tax return for that year. If you do not see that expense listed by name towards the second half of the first page of your 1040 form, somebody missed something.

Contact Pronto and we'll redo your tax return.

Above-the-Line Deduction Phase-Out Limits

The main "catch" about above-the-line deductions is that many of them are "phased-out" above certain income limits. Congress does not want to seem to be giving away tax breaks to rich people.

Especially if you are single and make good money, you likely won't qualify for many above-the-line deductions.

Still, it's always worth a careful look. Forgetting about above-the-line deductions is a common reason for overpaying income taxes.