Question

What are the differences between deductions for AGI and deductions from AGI on Form 1040? If all other factors are considered equal, does a taxpayer generally prefer a deduction to be a deduction for AGI, a deduction from AGI, or would a taxpayer be ambivalent between the two? If a taxpayer would generally one type of deduction over another, why would that preference occur?

Answer 1

Ans.    deductions for AGI if they are from gross income to determine Adjusted Gross Income, they're also called above the line deductions or above AGI. These expenses can be deducted even if a taxpayer does not itemize.

Deductions from AGI

It includes wages, interest, dividends, business income, rental income, and all other types of income. Adjusted gross income is gross income less deductions from a business or rental activity and 21 other specific items.

Deductions for AGI" can be claimed even if taxpayer does not itemize. It is important in determining the amount of certain itemized deductions.

* "Deductions from AGI," on the other hand, must exceed the standard deduction to provide any tax benefit. Also called "below the line" or itemized deductions.

Differentiate between "deductions for AGI" and "deductions from AGI"

* "Deductions for AGI" can be claimed even if taxpayer does not itemize. It is important in determining the amount of certain itemized deductions.

* "Deductions from AGI," on the other hand, must exceed the standard deduction to provide any tax benefit. Also called "below the line" or itemized deductions.

partial list of items included in "deduction for AGI?"

-Trade or business expenses
-Reimbursed employee business expenses
-Deductions from losses on sale or exchange of property
-Deductions from rental and royalty property
-Payment of Alimony
-One-half of self-employment tax paid
-Moving expenses

partial list of items included in "deduction from AGI, or itemized deductions?"

-Medical expenses (in excess of 7.5% of AGI)
-Certain state and local taxes
-Contributions to qualified charitable organizations
-Personal casualty losses (in excess of 10 % of AGI and a $100 floor per casualty)
-Certain personal interest expense (e.g., mortgage interest on a personal residence)
-Miscellaneous itemized deductions (in excess of 2% of AGI)

You can select one of two types of deductions: itemized deductions or the standard deduction. Whichever one you choose is up to you, but you cannot use both. The itemized deduction option allows you to list all your tax-deductible expenses for the year, such as property tax, medical expenses, eligible charity donations, gambling losses, and other costs incurred that influence your bottom line tax figure. Normally, if the total value of itemized deductions is higher than the standard deduction, you would itemize. Otherwise, you should opt for the standard deduction.1