Cut Your Taxes with Some Above-the-Line Deductions

By Katelyn Hayes   

above the line tax deductions

Anyone who's ever filed a tax return can tell you exactly how important tax deductions are for saving big bucks. But before you go through an entire year's worth of receipts identifying individual items to deduct, don't forget that "above-the-line" tax deductions let you lop off big sums from your total taxable income before you continue chipping away at that number with singled-out, itemized deductions.

"Above-the-line" tax exemptions are more akin to income adjustments than a regular tax deduction because they directly bring down your overall Adjusted Gross Income (AGI), which determines the amount of taxes you're forced to fork over to the IRS. The lower your AGI, the less money you owe the IRS.

There are several above-the-line adjustments you can make, depending on everything from what you do for a living to how you plan for your future.

Basic above-the-line deductions

  • Health Savings Account (HSA) contributions. Similar to a retirement plan contribution, an HSA lets you set aside funds for future healthcare needs that can grow tax-free. You can deduct $2,900 for individual insurance and $5,800 for family coverage.1
  • Higher education expenses. You can deduct up to $4,000 if your AGI doesn't exceed $65,000 for single filings and $130,000 for joint returns.2
  •  Student loan interest. You can adjust your AGI up to $2,500 for interest you paid for your, your spouse's or any dependent's student loans.2
  •  Any alimony paid out.

Work-related deductions

  • Classroom expenses. Educators can adjust their income up to $250 for money spent on supplies.3 Unlike other unreimbursed employee expenses, this isn't subject to the same 2-percent-rule that's applied to itemized deductions.
  • Retirement contributions. You can subtract the full amount of your contribution up to $5,000, or $6,000 if you're over 50.3
  • Penalty fees. Early withdrawal fines are deductable.2
  • Moving expenses related to job relocation.

There are also several above-the-line tax deductions specific to self-employed tax filers. Self-employment tax, insurance and retirement plan contributions are all considered above-the-line deductions.

Footnotes

1 "Health Savings Account Deduction," About.com
2 "No need to itemize above-the-line deductions," Bankrate.com
3 "10 Big Deductions Too Many People Miss," MSN Money