Above the Line Deduction

The above the line deduction is a kind of tax deduction that reduce the adjusted gross income of an individual or a business entity.

Example of Above the Line Deduction

Let’s assume that an individual A has an income of almost $100,000 per annum. He begins to fill out his IRS Form 1040. Because he paid alimony and had some moving expenses, he can deduct those items “off the top” and the deductions lower that income to, say, $80,000. That $80,000 is individual A adjusted gross income (AGI) — the income on which the IRS will assess income taxes and determine individual A eligibility for other tax deductions. For example, because his AGI is below $85,000, he is eligible to deduct more of his medical expenses and the interest on his student loan. Those deductions may not have been available to people with AGIs above, say, $95,000.There are several kinds of above-the-line deductions, as this snapshot from a 2012 IRS Form 1040

Importance of Above the Line Deduction

Above-the-line deductions reduce taxable income, making them very useful to taxpayers. Because adjusted gross income determines one’s eligibility for many other tax breaks and credits, they can “trigger” a host of other deductions for the taxpayer, making them in a sense more

valuable than “regular” tax deductions.



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