Those claiming “Standard Deduction” generally think there are no other deductions available while computing taxable income. But that is not correct. There are at least twelve deductions available to individual taxpayers to reduce taxable income. These deductions are popularly known as “Above-the-line” deductions because these can be deducted from the gross income to arrive at the adjusted gross income (AGI).
These deductions are beneficial because you do not need to itemize to take advantage of them; they are available to all taxpayers who qualify. So, here is a list of twelve such
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What expenses are deductible above-the-line?
1. Educator Expenses
Internal Revenue Code Section 62(a)(2)(D) allows qualified K-12 educators to deduct unreimbursed expenses for classroom supplies and professional development courses related to the curriculum they teach. For the tax year 2023, you can deduct up to $300 ($600 if married filing jointly and both spouses are educators).
This deduction is available to teachers, instructors, counsellors, principals, or aides who work at least 900 hours in a K-12 school certified by the state.
The expenses that can qualify as educator expenses include books, supplies, equipment, and other materials used in the classroom. Important to note is the fact that only un-reimbursed expenses are eligible for the deduction, and you must keep receipts and other documentation to support your claim of deduction in case of an audit.
2. Deduction for Certain Class of Taxpayers
Reservists, Performing Artists, and Fee-Basis Government Officials who qualify under these special rules can claim unreimbursed employee expenses on Form 2106 Employee Business Expenses. These expenses can then be taken as an adjustment to income directly on Schedule 1 (Form 1040) Additional Income and Adjustments to Income, Line 11, and not as an itemized deduction calculated on Schedule A (Form 1040) Itemized Deductions, Line 16.
3. Health Savings Account (HSA) Contributions
Contributions made to a Health Savings Account are allowed deduction from gross income. The maximum contribution amounts for 2023 are $3,650 for individuals and $7,300 for families. Taxpayers 55 and older are allowed an additional “catch-up” contribution of $1,000.
4. Moving Expenses for Members of the Armed Forces Deductible
Moving expenses for Armed Forces members on active duty who move pursuant to a military order are eligible to deduct some of their unreimbursed moving expenses from their gross income. Expenses related to moving household goods, personal effects, storage, and travel expenses (including lodging) to your new home are eligible. The expenses must be moving and storing household goods within the United States rather than within the same metropolitan area.
The form for claiming the moving expense is Form 3903: Moving Expenses.
5. Self-Employed Retirement Plan Contributions
Contributions to SEP-IRAs, SIMPLE IRAs, and other qualified plans are deductible while computing the Adjusted Gross Income (AGI). Read more on SEP IRA.
6. Self-Employed Health Insurance Deduction
If you are self-employed, the tax law provides that any premium paid for health insurance is deductible, above-the-line, which means for computing AGI.
7. Penalty on Early Withdrawal of Savings
The penalty amount on the early withdrawal of funds from a time savings account or certificate of deposit is deductible in determining adjusted gross income.
8. Student Loan Interest Deduction:
The student loan interest deduction is a federal income tax deduction that allows borrowers to subtract up to $2,500 of the interest paid on qualified student loans from their taxable income. Read more on this Student Loan Interest Deduction Calculator.
9. Deductible Part of Self-Employment Tax
A self-employed individual can deduct half of the self-employment tax paid by him/her.
10. IRA Deductions
Your traditional Individual Retirement Arrangements (IRA) contributions may be tax-deductible. The deduction may be limited if a retirement plan at work covers you or your spouse and your income exceeds certain levels. Please note that for 2023, the total contributions can’t be more than:
- $6,500 ($7,500 if you’re age 50 or older), or
- If less, your taxable compensation for the year
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