Adjustments, not deductions
Officially, these breaks are identified as adjustments to your income. But they are popularly referred to as "above-the-line deductions" because you subtract them on Page 1 of your Form 1040 or Form 1040A, just above each form's last line where you enter your adjusted gross income, or AGI.
Taking these deductions will reduce your AGI, which in most cases, directly cuts your overall tax bill because figuring your AGI is the first step in arriving at your final taxable income amount. The less taxable income, the less you'll owe the IRS.
While these deductions mean that Form 1040 filers don't have to hassle with Schedule A, a few above-the-line tax breaks do require you to fill out another IRS form or worksheet. Still, that's a relatively small time commitment to shave some dollars off your tax bill.
Listed below, in the order in which they appear on lines 23 through 36 of Form 1040, are the current above-the-line deductions.
1. Educator expenses. With the educators' expenses deduction, teachers and other public and private school system employees can subtract up to $250 they spent on classroom supplies. IRS' 1040 Instructions provides details of the above-the-line deductions that can be claimed here.
This tax break became a permanent part of the tax code, thanks to the Protecting Americans From Tax Hikes, or PATH, Act of 2015, which became law in December 2015. It also was enhanced. The $250 maximum deduction amount is now indexed for inflation. In addition, expenses for professional development can be counted in claiming this deduction.
2. Certain business expenses. Unreimbursed business expenses also appear on Schedule A as a miscellaneous deduction. But some taxpayers can claim work-related costs directly on line 24 without worrying about a percentage threshold. You do, however, have to fill out Form 2106 or 2106-EZ.
The special taxpayers who qualify for this adjustment are military reservists, performing artists and fee-basis government officials. Although this collection sounds more like the cast of an avant-garde foreign language film than related taxpayers, lawmakers have deemed that anyone who falls into one of these categories deserves special tax treatment. If you are in one of these 3 fields, check the Form 2106 instruction book for filing details.
3. Health savings account deduction. A health savings account, or HSA, is a medical coverage plan that works much like an individual retirement account. Eligible participants put money into an HSA where it grows tax-free and withdrawals can be made to pay medical, dental and vision-care costs not covered under a corresponding high-deductible health care policy.
4. Moving expenses. If you relocated for job reasons, some of your expenses can be deducted on line 26. You will, however, also have to fill out Form 3903.
5. Self-employment tax. If you're self-employed, you have to pay Social Security and Medicare taxes -- the amount collected from you as an employee and you as an employer. But you get to deduct half of those payments on line 27.
6. Self-employed retirement plans. If you have a self-employment pension plan, such as a Keogh or a Simplified Employee Pension plan, or SEP IRA, deduct any contribution amounts on line 28.
7. Self-employed health insurance. As an entrepreneur, you now can deduct 100% of health insurance premiums you paid for yourself, your spouse and dependents. Don't forget to count what you paid toward long-term care policies. You get a partial break here, too. Enter the amount on line 29.
8. Penalty on early withdrawal of savings. On line 30, the IRS gives you a break when someone else slaps your hand. If you cashed in a certificate of deposit and paid an early withdrawal penalty, you'll find the amount on the 1099-INT or 1099-OID that the account manager sent you. The IRS lets you subtract that charge from your income.
9. Alimony paid. Divorced filers get a chance to recoup alimony payments on line 31. Be sure to include the Social Security number of your ex-spouse, so the IRS can make sure he or she reports the payments as income. Without the recipient's tax ID number on your return, the deduction could be disallowed.