Contact us

[ return to list ]

Tax Roundup of "Above-the-Line" Deductions

Not all tax deductions were created alike. Certain expenses-such as charitable contributions and mortgage interest-are claimed as itemized tax deductions on your tax return. However, others are deducted "above the line" for determining your adjusted gross income (AGI).

Key point: Above-the-line deductions effectively reduce your AGI. This, in turn, reduces your overall tax bill and can help you qualify for other tax breaks. Furthermore, you can claim above-the-line deductions even if you claim the standard deduction instead of itemizing.

Here are several common above-the-line deductions on your 2005 tax return:

IRA (individual retirement account) contributions: The rules limiting IRA deductions based on the amount of your income only apply if you "actively participate" in an employer-sponsored retirement plan. In that case, deductions for 2005 returns are phased out for single filers with an AGI between $50,000 and $60,000; $70,000 and $80,000 for joint filers if both spouses are active participants. Even better: If only one spouse is an active plan participant, the deduction for joint filers is phased out between $150,000 and $160,000 of AGI.

Tuition deduction: If you fall below certain income limits, you can deduct as much as $4,000 of the tuition and fees you pay for post-secondary school education. And there is more room under the income limits than you might think. For instance, the $4,000 write off is available for single filers with an AGI up to $65,000; $130,000 for joint filers. Furthermore, single filers can claim a $2,000 deduction if they have an AGI up to $80,000; the limit for joint filers is $160,000.

Student loan interest: The taxpayer who is legally obligated to pay off a student loan for higher education can deduct up to $2,500 of interest on his or her tax return. This deduction is phased out for a single filer with a modified AGI between $50,000 and $65,000; $105,000 and $135,000 for joint filers. Note that your child can deduct the interest on any portion of the loan you repay as long as he or she cannot be claimed as your dependent.

Moving expenses: When you make a job-related move, you can deduct moving expenses if you pass this two-part test: (1) Your new home must be 50 miles farther from your old home than your old workplace was from your home, and (2) you generally must stay at the new job for at least 39 weeks of the next 12 months. If you qualify, you can deduct the cost of transporting household goods and personal effects plus your travel and lodging costs (but not meals) en route to the new home.

Self-employment tax breaks: If you are self-employed, you can claim several tax types of deductions above the line. This includes 50% of the self-employment tax you are required to pay and 100% of your health insurance costs and qualified retirement plan contributions. For example, you may be able to deduct your annual contributions to a SEP (simplified employee pension), SIMPLE (savings incentive match plan for employees) or Keogh plan within generous limits.

And there is more. Several other types of expenses may be deducted above the line ranging from alimony costs to HSA (health savings account) contributions to deductions. Your tax return preparer can help you maximize the tax deductions on your 2005 return.

[ return to list ]




	[ return to list ] Tax Roundup of "Above-the-Line" Deductions Not all tax deductions were created alike. Certain expenses-such as charitable contributions and mortgage interest-are claimed as itemized tax deductions on your tax return. However, others are deducted "above the line" for determining your adjusted gross income (AGI). Key point: Above-the-line deductions effectively reduce your AGI. This, in turn, reduces your overall tax bill and can help you qualify for other tax breaks. Furthermore, you can claim above-the-line deductions even if you claim the standard deduction instead of itemizing. Here are several common above-the-line deductions on your 2005 tax return: IRA (individual retirement account) contributions: The rules limiting IRA deductions based on the amount of your income only apply if you "actively participate" in an employer-sponsored retirement plan. In that case, deductions for 2005 returns are phased out for single filers with an AGI between $50,000 and $60,000; $70,000 and $80,000 for joint filers if both spouses are active participants. Even better: If only one spouse is an active plan participant, the deduction for joint filers is phased out between $150,000 and $160,000 of AGI. Tuition deduction: If you fall below certain income limits, you can deduct as much as $4,000 of the tuition and fees you pay for post-secondary school education. And there is more room under the income limits than you might think. For instance, the $4,000 write off is available for single filers with an AGI up to $65,000; $130,000 for joint filers. Furthermore, single filers can claim a $2,000 deduction if they have an AGI up to $80,000; the limit for joint filers is $160,000. Student loan interest: The taxpayer who is legally obligated to pay off a student loan for higher education can deduct up to $2,500 of interest on his or her tax return. This deduction is phased out for a single filer with a modified AGI between $50,000 and $65,000; $105,000 and $135,000 for joint filers. Note that your child can deduct the interest on any portion of the loan you repay as long as he or she cannot be claimed as your dependent. Moving expenses: When you make a job-related move, you can deduct moving expenses if you pass this two-part test: (1) Your new home must be 50 miles farther from your old home than your old workplace was from your home, and (2) you generally must stay at the new job for at least 39 weeks of the next 12 months. If you qualify, you can deduct the cost of transporting household goods and personal effects plus your travel and lodging costs (but not meals) en route to the new home. Self-employment tax breaks: If you are self-employed, you can claim several tax types of deductions above the line. This includes 50% of the self-employment tax you are required to pay and 100% of your health insurance costs and qualified retirement plan contributions. For example, you may be able to deduct your annual contributions to a SEP (simplified employee pension), SIMPLE (savings incentive match plan for employees) or Keogh plan within generous limits. And there is more. Several other types of expenses may be deducted above the line ranging from alimony costs to HSA (health savings account) contributions to deductions. Your tax return preparer can help you maximize the tax deductions on your 2005 return. [ return to list ]
2423-B Plantation Center Drive, Suite B, Matthews NC 28105 Fax:704-845-0928 © Copyright 2004 Desai & Desai, LLP