By John Waggoner, AARP March 2023
Learn about the 8 Common Above-the-Line Deductions Anyone Can Claim.
Take these write-offs on your 1040, even if you don’t itemize your return.
Doing your taxes is a hunt for ways to minimize your income: The lower your income, the less tax you pay. For most retirees and pre-retirees, this means taking the standard deduction and moving on to computing the tax you owe. But there are a handful of deductions that you may be able to claim even if you don’t itemize your deductions. They’re called above-the-line deductions, and they can be your friends at tax time.
What’s “the line”? That would be line 11 on IRS Form 1040, which is where you put your adjusted gross income (AGI). The first line below that, line 12, is where you would put your itemized deductions from Schedule A. But most people don’t itemize their deductions: About 15.5 million taxpayers itemized in 2020, down from 45 million in 2016, according to the Internal Revenue Service (IRS).
The big drop in itemized returns can be attributed to the Tax Cuts and Jobs Act of 2017, which raised the standard deduction dramatically starting in tax year 2018. Today, individuals can claim a $12,950 standard deduction, and married couples can claim $25,900. It’s $19,400 for heads of households. For each taxpayer 65 and older or blind, the standard deductions goes up another $1,400 ($1,750 for single filers and heads of households). Unless you have more itemized deductions than the standard deduction, it makes no sense to itemize.
But if you are eligible for above-the-line deductions, you can deduct them before you calculate your adjusted gross income, no matter how small those deductions are. And many people have at least one above-the-line deduction that fits them. Many of these above-the-line deductions are calculated using the Schedule 1 — Additional Income and Adjustments to Income — worksheet included in the 1040 instructions and reported on line 10 of your tax return — one line above your adjusted gross income.
Common above-the-line deductions
1. Alimony paid
If you divorced before 2019 and are still paying alimony, your payments are an above-the-line deduction. (For the recipient, that alimony is taxable income.) If you were divorced on or after Jan. 1, 2019, you can’t deduct your alimony payments, and the recipient doesn’t have to pay taxes on them.
If you alter your divorce agreement to say that the new rules apply, then the new rules will apply to your payments.
2. Early withdrawal penalties
Did you have to crack open a bank certificate of deposit last year? Did you get dinged with a penalty? You can deduct the danged ding above the line.
3. Health savings accounts (HSAs)
If you have a high-deductible medical plan, you can cover some of your out-of-pocket expenses with an HSA. If you paid for your HSA with after-tax money, you can deduct up to $7,300 for families and $3,650 for individuals this tax year. If you’re 55 or over at any time in the year, you can contribute and deduct another $1,000. You’ll need to file Form 8889 — Health Savings Accounts (HSAs) — with your return. And if you paid for your HSA with pretax money, you don’t get the deduction.
4. Individual retirement accounts (IRAs)
If you contributed to a traditional IRA, and neither you nor your spouse had a retirement plan available to you during the year, the contributions are tax deductible. You can each contribute $6,000 — $7,000 if you’re 50 or older. If you did have a retirement plan available at work, you still may be able to deduct some or all of your IRA contribution, depending on your income.
5. Military moving expenses
If you have a permanent change of station — either from your home to your military base, from one base to another, or a move from your last post back home — you can deduct reasonable moving expenses. Those expenses include the cost of moving household goods, personal effects, storage and traveling expenses (including lodging) to your new home. That burger you bought at a rest area on the Ohio Turnpike? Nope. Meals aren’t included.
You must take the deduction within one year of ending your active duty.
6. Self-employment costs
One of the shocks for many people who become self-employed is the payroll tax for Social Security and Medicare. It’s a combined 15.3 percent of your gross income on top of ordinary income taxes. Fortunately, you can take half of that in an above-the-line deduction. (You’ll have to file Form 1040 Schedule SE — Self-Employment Tax — to claim it, but if you have self-employment income, you’ll have to file it anyway.)
But those aren’t the only self-employment costs eligible for an above-the-line deduction. If you have a self-directed retirement plan, such as a SIMPLE IRA or a Simplified Employee Pension (SEP), that’s an above-the-line deduction, too. And if you’re paying for your own health insurance (including Medicare), you can deduct those premiums, as well.
7. Student loan interest payments
Although most student loan payments were suspended in 2022 due to the COVID-19 pandemic, no one was forbidden to make payments. And if you did make payments, the interest portion is an above-the-line deduction, which may soften the impact of making those payments. There’s a limit to this deduction: $2,500.
8. Teacher expenses
If you’re a teacher and have to pay some expenses out of your own pocket — think books, organizational containers, toys or musical instruments — you can deduct up to $300. If you’re married to another teacher, you can jointly deduct $600.
Other less common deductions. Are you an Olympic (or Paralympic) champion? You can deduct your winnings. Did you give your pay from your jury duty to your employer because it was paying you? You can deduct that as well. Did you have supplemental unemployment benefit repayments? You can deduct those. All of the less-common deductions are outlined in IRS Publication 529 — Miscellaneous Deductions.