Most tax deductions allowed by the tax code will require a taxpayer to itemize their deductions. For example, itemizing medical expenses means that the taxpayer pays in medical expenses, the excess of 7.5 % of one’s Adjusted Gross Income (AGI). Other itemization rules apply for different expenses on an item-by-item basis. Many taxpayers’ deductible expenses will fall below the standard deductions. Furthermore, most taxpayers opt for the easier way of preparing the tax returns by simply claiming the standard deductions. For this reasons, most taxpayers do not itemize their tax deductions.
However, there are deductions that can be taken even for those who go for the standard deduction option. These are called above-the-line deductions. These items are deducted from the Gross Income in order to arrive at the Adjusted Gross Income (AGI). Therefore, regardless of the option of deduction you go for, if you have incurred any of these above-the-line deductibles, ensure that you claim them accordingly.
1. Moving Expenses – Any costs for relocating from your place of residence to a new area are tax deductible if they are incurred directly by the taxpayer and not reimbursed. However, such relocation must be for purposes of reporting to a new location of workplace, looking for employment in a new region, or for business purposes. For the deduction to qualify, the new workplace that you will have relocated to must be at least 50 miles from your former place of residence. For business relocation, the general area of your clients must also be more than 50 miles from your former place of residence.
2. Health Savings Account Contributions – Contributions made to a Health Savings Account (HSA) also qualify for above-the-line deductions. However, one needs to have a high-deductible health insurance policy that qualifies for the deduction to be eligible.
3. Health Insurance Premiums – Any premiums paid for health insurance policies for individual coverage as opposed to group coverage is also an above-the-line deduction. The qualifying insurance premiums also include that of the high-deductible health policies.
4. Alimony – Payments made for alimony to an ex-wife or ex-husband are also above-the-line tax deductibles. The alimony must be determined in a divorce verdict. However, this deduction does not include child-support payments. On the other hand, the person receiving the alimony pays taxes on the funds as income.
5. Qualifying Retirement Account Contributions – Contributions made to qualifying retirement accounts that have a tax savings are also above-the-line deductibles. This includes contributions to traditional IRAs and 401(k) accounts.
6. Portion of Self-Employment Taxes – For the taxpayers who are self-employed, one half of the self-employment taxes is tax deductible and this deduction is also considered above-the-line. Self-employed individuals are charged Social Security and Medicare taxes at a rate of 13.3% for 2011. Half of these taxes are deductible.
7. Student Loan Interest – The interest element of student loans are also above-the-line deductibles. The deduction is for the interest only and not for the principal of the loan. Furthermore, this deduction is only available to taxpayers who earn an Adjusted Gross Income of $75,000.00 and below for single filers or $150,000.00 for the couples who file jointly.