Last week, we’ve talked about why you should maximize your above-the-line deductions or adjustments to your gross income. The AGI (or adjusted gross income) are used when calculating some limitations for your other deductions or credit. You see, you do not have to itemized your expenses for you to claim these deductions. This means that you can claim this even if you are just claiming the standard deductions. These are perfect deductions especially for single filers. Below are the 10 above-the-line deductions you do not want to miss:
1. Traditional IRA
You can deduct up to $5,000 ($6,000 for 55 years and older) if you do not have a retirement plan at work or if you make less than $66,000 ($89,000 for married filing joint) even if you have a retirement plan at work. If your spouse has a retirement plan at work but you don’t, you can still deduct your IRA contributions for as long as your modified adjusted gross income (MAGI) is less than $177,000. If you make more than the threshold amounts, none of your contributions are deductible so you are better off contributing to a Roth IRA instead.
If you pay alimony to your ex-spouse, then these payments are deductible as “above-the-line” deductions to your gross income. Please keep in mind that child support, non-cash property settlement, payments that are your spouse’s part of community income under community property, payments to keep up the payer’s property, or use of the payer’s property are not considered alimony, thus, are not tax deductible.
3. Educator Expenses
If you are a teacher, instructor, counselor, principal, or aide who worked in a primary and secondary schools (kindergarten through grade 12) for at least 900 hours during a school year, then you can deduct up to $250 of qualified expenses such as books, school supplies, equipment (computer, software, printers, etc), and other materials used in the classroom. Expenses used for home schooling or non-athletic supplies for courses in health or physical education do not qualify.
4. Student Loan Interest
You can deduct up to $2,500 of interest that you paid for your student loans used for higher education if your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return).
5. Tuition and Fees Deduction
You may be able to deduct qualified education expenses of up to $4,000 paid during the year for yourself, your spouse, or your dependent(s). You cannot claim this deduction if your filing status is married filing separately, if another person can claim an exemption for you as a dependent on his or her tax return, or if you make more than $80,000 for single ($160,000 for married filing joint). For a more detailed explanation, please read the post on Tuition and Fees Deduction.
6. Moving Expenses
If you have moving expenses related to starting work at your new job, you may be able to deduct those from your gross income as above-the-line deductions. This may apply whether you are self-employed or an employee. You can deduct the cost of packing, crating, storage and transporting your household goods and personal effects and those of the members of your household from your former home to your new home. In addition, you can also deduct any travel expenses incurred such the cost of transportation and lodging. If you receive reimbursements from your employer, you can only deduct the portion of the expenses that were not reimbursed.
7. Jury Duty Pay Given To Your Employer
Some employers may continue to pay their employees with their regular salaries while serving for jury duty. However, when this happens and the employee also received jury duty pay from the court at the same time, the employer may ask that these payments be given to the employer. The jury duty pay given to the employer would be considered a tax deduction and is categorized as “above-the-line.”
8. Contributions to Health Savings Account (HSA)
HSA account is a tax exempt account that you establish with a qualified trustee such as an insurance company, a bank, or anyone approved by the IRS. This account will help you pay or reimburse qualified medical expenses you incur.
9. Health Insurance for the Self-employed
If you are self-employed and have net profit for the year, you may be able to deduct qualified medical insurance premium for you and your family. The insurance plan must be under your trade or business and the deduction cannot be more than the net profit of your business.
10. One-half of the Self-employment Tax
Have you ever looked at your paycheck and notice a box for FICA (social security and Medicare taxes)? Did you know that half of those tax is paid by you and the other half is paid by your employer? When you are self-employed, you essentially are paying for both. Because you are in business, you are allowed to deduct the employer portion (or half of the social security tax) as an adjustment to your income.
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