Question

Refer 1040 Tax Form and Give information about above the line deductions?

Answer 1

Technically, these deductions are called “adjustments to income.” They're referred to as “above the line” because they used to be claimed on the first page of the Form 1040 tax return, before the line that designates your resulting adjusted gross income (AGI). They subtract from your income to arrive at your AGI. You could then subtract your standard deduction or the total of your itemized deductions from this number to reduce your taxable income even more.

The math and the end result are still the same, but these deductions are no longer actually "above the line" because of changes made to the 1040 in 2018 and 2019.

Above-the-Line Deductions for the Self-Employed

Three above-the-line deductions can help out if you’re self-employed:

1. You can claim one for half the self-employment tax you must pay because you work for yourself rather than an employer. The self-employment tax is the Medicare and Social Security taxes that you would ordinarily share with your employer, but you can claim an above-the-line deduction for the portion your employer would have paid.2
2. Contributions to a self-employed retirement plan are an above-the-line adjustment to income.

3. You can claim the premiums you pay for health insurance and long-term care policies for yourself and your dependents without itemizing and being subject to that 7.5% rule, up to the amount of your business’s net income 1.

The Penalty on Early Withdrawal of Savings

Maybe you were feeling flush last year so you invested in a certificate of deposit (CD), then something happened to make you feel not-so-solvent after all. You cashed in the CD before it matured, only to be hit with a penalty for doing so. There’s an above-the-line deduction for these types of fees as well.

You should receive a 1099-INT, 1099-DIV, or a 1099-OID form from the financial institution, telling you the total penalty that you can claim on Schedule 1

Retirement Plan Contributions

The money you contribute to an IRA is also deductible above-the-line, or at least some of it is. There are limits to how much you can invest based on your AGI before you claim these amounts as adjustments to income. Some other rules also apply, such as whether you or your spouse have access to employer-provided retirement plans.

Contributions to 401(k), 403(b), and 457 plans are eligible for this deduction as well, again subject to phaseout rules that are dependent on your AGI, but Roth accounts don’t qualify.

Student Loan Interest

You can claim an above-the-line deduction for up to $2,500 in interest you pay per year on qualifying student loans if you’re pursuing a college education or you’re paying for a dependent or your spouse to do so.

AGI limits prior to claiming this deduction apply here, too, however. You can’t claim the student loan interest deduction if you’re a single taxpayer with an AGI of $85,000. You won’t be able to claim the entire $2,500 if your pre-student loan interest deduction AGI is $70,000 or more

Health Savings Accounts

You can invest money into a health savings account to pay for certain healthcare costs that aren’t covered by your health insurance plan, and these contributions are also above-the-line adjustments to income.

The plan must be a high-deductible policy, and group policy coverage doesn’t qualify. Your contributions must be made with “after tax” dollars—in other words, they weren’t deducted from your pay before taxes were withheld on the balance. That would effectively give you two tax breaks on the same money.

Educator Expenses

Teachers and some other school employees can claim an above-the-line deduction for up to $250 as reimbursement for money they spend out of pocket on classroom supplies. Costs associated with taking certain continuing education courses are deductible as well. This increases to $250 each if you're married to an educator and you file a joint tax return.

Some rules apply, however. You must have worked at least 900 hours during the tax year, and being employed by a post-secondary school doesn’t count