Tax Blog

March 19, 2009
The Difference Between Above-The-Line And Below-The-Line Deductions
categorized as: Tax Deductions

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Permissible tax deductions work to abate tax liability. What is problematic is the lack of awareness in distinction of “above the line” deductions and “below the line” deductions. What is more, “above the line” deductions are worth more to the bottom line than “below the line” deductions; “the line” being your adjusted gross income, known as (AGI). As such, your (AGI) determines your tax rate; consequently you want to have as many “above the line” deductions as possible.

“Above the line” deductions are those that you have subtracted on the top portion of your tax return, before your adjusted gross income (AGI) has been determined. “Above the line” deductions are important in helping you reduce your adjusted gross income which is the key to reducing your tax liability.

These are examples of, however are not a complete list of, “above the line” deductions:

• Schedule C or F Business Deductions
• Rental Deductions
• Stock Losses
• Moving Expenses
• Student Loan Interests Paid
• Alimony

“Below the line” deductions are those that you will subtract from your adjusted gross income (AGI) sum at the bottom of the tax return. So your (AGI) has already been determined when you utilize “below the line” deductions.

These are examples of, however are not a complete list of, “below the line” deductions:

• Charitable Donations
• Medical Expenses
• Tax
• Interest Expenses

“Above the line” deductions are more advantageous to the tax payer. Additionally, “below the line” deductions are not allowable unless in excess of the required (AGI) percentage. For example, medical expenses are “below the line” deductions; however they are only allowable if they exceed 7.5% of the tax payers adjusted gross income, (AGI).

“Above the line” deductions are invaluable in the sense that they are fully allowable even in the event the tax payer takes standardized deductions as apposed to itemized.

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2 Responses

Very helpful!! thx! =)
Thanks! So clear! Wish my professor could do it the same way.

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