
Missed the tax deadline? Here’s what you should do
If you haven’t filed your taxes yet, don’t panic — but act fast.
Above-the-line deduction is a key term for taxpayers to understand. Bankrate explains it.
An above-the-line deduction is a deduction the IRS allows you to subtract from your annual gross income in order to arrive at your “adjusted gross income,” or AGI. It is the AGI on which you are taxed. Above-the-line deductions are beneficial because they reduce your AGI, which reduces the amount of taxes you owe.
Any above-the-line deduction that can reduce your AGI impacts the rest of your tax return. Your AGI is used for a number of different calculations on your return, including which credits you qualify for. Credits such as the Earned Income Tax Credit, the American Opportunity Tax Credit and the Child and Dependent Care Credit, are limited by adjusted gross income. The beauty of tax credits is that they are directly applied to the total tax you owe and serve as a dollar-for-dollar reduction.
But first, you have to qualify for those tax credits, and reducing your AGI through above-the-line deductions is the way to do so. Tax credits also can impact your below-the-line deductions.
Below-the-line deductions are those allowable items you subtract from your AGI after it has already been established. Below-the-line deductions are normally those you see on Schedule A when you itemize your tax return. Medical expenses are an example of a below-the-line deduction. Below-the-line deductions are not deductible unless they exceed a certain percentage of your AGI. For example, for the tax year 2016, anyone under the age of 65 could claim medical expenses only if they exceeded 10 percent of their AGI. For a family with an AGI of $75,000, medical expenses would need to be $7,500 or more.
Above-the-line deductions benefit everyone who files. Each time you file taxes, you have the option to either itemize or take the standard deduction. This means that whether or not you itemize, you will have a sum subtracted from your earnings and end up with a lower AGI.
Above-the-line deductions include:
Use our calculator to determine which tax bracket you’re in.
If you haven’t filed your taxes yet, don’t panic — but act fast.
Typically, taxpayers have two options: Take the itemized deductions or take the standard deduction.
Regardless of what may cause a person to miss the tax-filing deadline, there are potential consequences.
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