Tax Deductions: Above the line & below the line

Edmond Life & Leisure - Cassie Divelbiss

Feb 15, 2022

Differences between above the line and below the line deductions.

I heard a tax preparer refer to deductions on my personal return as above the line and below the line deductions.

What is the difference between the two?
The most common personal in-come tax deductions can be classified into two categories: above the line deductions and below the line deductions. "The Line” is talking about your calculated adjusted gross income (AGI) on your 1040. Your adjusted gross in-come on your tax re-turn is used as a threshold to calculate other items on your 1040. Above the line deductions are used in calculating your AGI. Below the line deductions are deducted after your AGI has been calculated to arrive at your taxable income. Both types of deductions help in reducing your taxable income for the year.

What are some above the Line deductions available?
Above the line deductions are located on Schedule 1, Part II of your 2021 1040. Some common above the line deductions are health savings account (HSA) contributions, IRA contribution, student loan interest and educator expenses. You can deduct up to $3,600 for single or $7,400 for a family in 2021 for HSA contributions made if your health insurance is a high-deductible plan. Traditional individual retirement account contributions can be used as an above the line deduction as well. If you paid any interest on student loans in 2021, you should receive a 1098-E showing the amount of interest paid and could be an above the line deduction. Teachers get their own above the line deduction and can deduct up to $250 of unreimbursed expenses used in the year.

What are some below the Line deductions available?
Below the Line deductions are de-ducted from your AGI to arrive at your taxable income. The standard deduction for 2021 is $12,550 for single, $25,100 for married, and $18,800 for head of household filers. This is the below the line deduction you automatically get on your tax return. There is also a special rule for 2021 tax year that if you take the standard, you can also take a deduction of $300 per per-son for charitable giving. You can take an itemized deduction if the amount shown on your Schedule A is more than the standard deduction. The Schedule A calculates the itemized deductions you can take for medical expenses, state and local taxes, mortgage and investment interest, and charitable contributions. To take med-ical expenses, the total spent on out-of-pocket medical expenses must be over 7.5% of your current year calculated AGI. Then you only get to take the amount spent over 7.5% of your AGI. State income taxes paid in 2021 and real estate taxes paid are added together to get to the amount you can deduct for taxes paid. Mortgage interest and mortgage insurance payments shown on Form 1098 can be taken as an itemized deduction. Charitable cash and non-cash contributions to qualified charities are shown as deductions on the Schedule A as well.
Tax deductions are something we all want to take advantage of so that we can reduce tax we owe. Always make sure when taking deductions on your tax return that you keep records to verify and confirm the deductions shown on your tax return.

Cassie Divelbiss, CPA, is a Tax Associate at Arledge, an Edmond-based public accounting firm. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, audit-ing, consulting, accounting advisory services and client accounting.

This article contains general information only and does not constitute tax advice or any other professional services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor. This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.