Discuss why deductions FOR AGI are generally considered more beneficial to taxpayers than deductions FROM AGI....

Discuss why deductions FOR AGI are generally considered more beneficial to taxpayers than deductions FROM AGI. Give at least two reasons.

Expert Solution

When deductions are made from gross income to arrive at the adjusted gross income (AGI) it is known as deductions for AGI or 'Above the line' deductions. On the other hand when deductions are made from adjusted gross income it is known as deductions from AGI or 'Below the line' deductions.

Deductions for AGI considers mainly business and rent and royalty expenses whereas deductions from AGI considers itemized deductions, standard deductions and qualified business income.

Taxpayers consider deductions for AGI than deductions from AGI because of the following reasons:

i) Deductions for AGI reduces the adjusted gross income (AGI) which results in lower taxable income.

ii) Deductions from AGI suffers from limitations like floor limitations. For example, Mary has paid $2000 as medical expenses and her AGI is $50000. If the floor limitation is set at 15 percent of AGI, in this case Mary would not be able to avail any deduction because 15 percent of $50000 is $7500 which would be subtracted from the amount of $2000 resulting in a negative figure of $5500.

ekkarill92 answered 2 years ago

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