Question

The adjusted gross income number (AGI) is an important one. It is said it is always better for a deduction to be "for" AGI, i.e., deductible in arriving at AGI. These are also called "above the line" deductions. Why is it better? Can you name any specific benefits to being deductible above the AGI line?   Discuss one or two "above the line" expenses or adjustments to income from the front page of the 1040. Why policy reason do you think made these above the line deductions instead of as itemized deductions?

Answer 1

Above the line deduction are better because they reduce the tax liability and also increase a number of other tax benefits that are disallowed or phased out. In many cases, above the line deduction can actually give deduction of more then what is claimed.

Specific benifits to being deductible above the AGI line are:

• Alimony
• Early withdrawal penalties for CDs and savings accounts
• Educator expenses
• Job-related moving expenses
• Qualified tuition and fees

Alimony: It is shown on line 31a of Form 1040. However in the recent changes, for the new divorce cases ,the person paying the alimony would not be able to deduct them and the person receiving it would not have to include it in income either

The above the line deductions can not be standardised as they may not be same for all the persons as per their income, that is why to bring harmony in the taxation system, these were introduced so that the person may claim as deduction what they actually paid.