Tax Tip of the Week
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What's an "above-the-line" deduction?
For the week of
April 16, 2001
Above-the-line deductions reduce your adjusted gross income (AGI). That's important
because your AGI level determines whether you are eligible for at least 20 other tax benefits, such as tax credits,
itemized deductions, and exemptions.
Above-the-line deductions refer to all deductions reported on page one of your Form 1040. You can receive the tax
benefit of above-the-line deductions whether or not you itemize your deductions.
Above-the-line deductions include the following items:
- Traditional IRA contributions
- Student loan interest
- Penalty on early withdrawal of savings
- Alimony paid to former spouse
- Medical savings account deduction
- Moving expenses
There are above-the-line deductions for self-employed individuals, such as ordinary
business deductions, 50% of self-employment tax, 60% of health insurance premiums, and contributions to SEP, SIMPLE,
and qualified retirement plans.
In a kind of catch-22, above-the-line deductions can be reduced if your adjusted gross income is too high. For
example, for single taxpayers, your IRA will not be deductible if you are covered under your employer's pension
plan and your adjusted gross income exceeds $43,000 for 2001. This income limit is $63,000 if you're married filing
jointly.
With proper tax planning, you can retain more of the tax benefits available
under the law. Call us for details and assistance.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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