Deductions for nonitemizers

April 5, 2007

Most taxpayers claim the standard deduction. But every tax-filing season, these folks tend to get overlooked as tax tips are tossed about on how to cut tax bills.

The focus is on itemizing. And yes, there’s a lot to be covered for those Schedule A filers.

But even taxpayers who take the standard deduction have a chance to lower their tax bills by claiming what are popularly known as above-the-line deductions.

Abovetheline10402006_3
These technically are adjustments to income. They’re found in the section titled Adjusted Gross Income at the bottom of the first page of Form 1040. A few also show up on the 1040A. The above-the-line appellation comes because the total of these adjustments is tallied just before the last line of both forms.

Those lines #23 through #36 on the 1040 and #19 through #20 on the 1040A offer ways to shave some of your total income, which in turn will give you a lower taxable income amount and eventually a lower tax bill.

They include such things as education-related costs (for teachers as well as students), retirement and health plan contributions and moving expenses, and are available to every eligible taxpayer, even those who itemize.

But they are especially welcome by filers who don’t use Schedule A, since these above-the-line options represent a sort of side-door into the tax deduction room that you previously have felt locked out of.

A couple of popular above-the-line breaks the tuition and fees and educators’ expenses were passed too late in 2006 to make it onto the form. But they still can be claimed; it just takes a bit of extra work (details here).

As for the form itself, here’s a quick look at these breaks in the order they appear on the 1040:

Line 23, Archer MSA deduction: This is a special health care coverage break designed for employees of small businesses and the self-employed.

Many taxpayers, however, will use this line 23 to claim the educators’ expenses deduction. This is where you can write off up to $250 of personal money spent last year on classroom supplies. The IRS provides a graphic example here.

Line 24, Certain business expenses: This applies to special job categories — military reservists, performing artists and fee-basis government officials. For other workers, Schedule A (with its 2 percent threshold) is still required.

Line 25, Health savings accounts: This is where you can write off your contributions to one of these medical coverage plans, commonly referred to as HSAs.

Line 26, Moving expenses: Under certain circumstances, many of your relocation costs can be deducted from your gross income here.

Line 27, Self-employment tax: If you worked for yourself, either full-time or as a side job to bring in some extra spending money, you likely had to pay self-employment tax. Half of that amount can be subtracted here.

Line 28, Self-employment retirement plans: Staying in the be-your-own-boss vein, if you were able to contribute to a retirement plan (e.g., SEP-IRA or Keogh), note that amount here.

Line 29, Self-employment health insurance: One more break for the independent worker. If you paid for your own medical policy, those premiums are fully deductible here.

Line 30, Early savings withdrawal penalties: If you had to cash in a CD and paid the price at your bank, you now can write off that fee.

Line 31, Alimony: This is for the paying ex-spouse, not the recipient. You can deduct this support money — but not any funds you paid to take care of your kids.

Line 32, IRA contribution: If you have a traditional IRA, you might be able to deduct some or all of your contribution. This is the place to do so.

Line 33, Student loan interest: Write off up to $2,500 in interest on your school debt here.

Line 34, Jury duty pay: If you got any compensation for doing your civic duty and turned it over to your boss, who also paid you while you were impaneled, then you can deduct that here.

Line 35, Domestic production activities: Yeah, most of us will say "what?" when we get to this line. But for filers in the construction, farming or even some artistic fields (films and recordings), this deduction could help at tax time.

And as with line 23, line 35 does double deduction duty this year. If you can claim the tuition and fees tax break, you can enter up to $4,000 of those costs here. You’ll find an example of the entry at this IRS page.

Line 36: It says simply to add up the previous lines. But if you read the 1040 instruction book and you do faithfully read all the tax form directions, don’t you? you’ll find this is where you deduct a variety of specialized expenses, such as costs related to income from the rental of personal property, reforestation amortization and contributions to certain pension plans. Told you they were special!

You can get more details about these deductions in this story. The above-the-line bottom line is that these adjustments can help cut the tax bills of the majority of taxpayers who take the standard deduction.

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Comments
  • robin dyer

    this tax stuff gets crazier every year! i dont believe they even understand it all! why not just have a simpler approach?

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