Above-the-line vs below-the-line deductions

A look at which deductions you can take

Derek Silva

Derek Silva

Published January 31, 2020

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KEY TAKEAWAYS

  • The “line” is your adjusted gross income, with above-the-line deductions coming out before you calculate your AGI and below-the-line deductions coming after

  • Above-the-line deductions, on Schedule 1, are available to everyone that qualifies

  • Below-the-line deductions include itemized deductions (which most people don’t qualify for) and the qualified business interest deduction

  • The result after taking above-the-line deductions is your AGI, which determines your eligibility for itemized deductions

There are two main types of deductions: above-the-line deductions and below-the-line deductions. They’re all available to people who use Form 1040 — the main federal tax form. The main differences are when in the tax-filing process you claim them and who can qualify to claim them.

You claim above-the-line deductions first. They directly reduce your gross income before any other taxes or deductions have been applied. The IRS does not use the term above-the-line deduction on official tax forms and usually just refers to them as adjustments to income. As long as you meet an individual deduction’s eligibility rules, you can claim it.

Then you can claim the standard deduction, which is a set amount that doesn’t change regardless of your financial situation. Individuals with certain types of personal expenses can choose to deduct the exact value of those expenses instead of the standard deduction. These are called itemized deductions and are what people usually mean when they refer to below-the-line deductions.

Most itemized deductions are linked to spending more than a certain percentage of your income, and you need to have a certain amount of total itemized deductions in order to claim any of them.

In this article

How deductions affect your taxes

Deductions reduce your taxable income. The federal income tax you pay during the year is calculated by applying the federal tax brackets to your taxable income, not your gross income (total income for the year). Taxable income is just your gross income minus the value of all your deductions.

After taking your above-the-line deductions, you’ll get your adjusted gross income (AGI), which is the “line” used to differentiate deductions. Once you find your AGI, you can see if you qualify for below-the-line deductions.

At this point, everyone can take the standard deduction, which is determined by your filing status. Even though you take it after finding your AGI, the standard deduction doesn’t change based on your AGI and it isn’t usually referred to in terms of being above or below the line.

If you have certain kinds of personal expenses, you can choose to deduct their exact value instead of the standard deduction. These are called itemized deductions and are what people focus on when talking about below-the-line deductions.

Very few people qualify to itemize deductions after the 2017 tax reform (Tax Cuts and Jobs Act). Most itemized deductions require you to have spent more than a certain percentage of your AGI on eligible expenses. Your total itemized deductions also need to be more than the standard deduction in order for you to claim any of them. Someone who incurred significant expenses in one type of itemizable deduction still may not be able to itemize. This is a big difference from the above-the-line deductions.

Finally, there’s the QBI deduction — the only below-the-line deduction available to anyone who meets its individual requirements, regardless of whether or not they itemize. We’ll explain that one later.

Learn more about the tax filing process with our complete guide to filing taxes.

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Above-the-line deductions

When you fill out your tax return, the first deductions you can take are above-the-line deductions. These deductions are available to all taxpayers, but each has its own requirements that you must meet.

Above-the-line deductions are also called adjustments to income. They deal with a handful of specific, personal expenses that you may have incurred during the year. Each deduction you claim reduces how much of your income from the year is subject to income tax. After making those reductions, you arrive at your AGI (adjusted gross income).

You can claim above-the-line deductions by completing Schedule 1 and attaching it to your tax return. Not all above-the-line deductions have an official title with the word “deduction” in it. People simply reference the deduction for a certain expense.

Above-the-line deductions are available for 12 main types of expenses:

  • Educator expenses for classroom supplies, up to $250
  • Business expenses for government officials who work on a fee basis, performing artists, and members of the military reserve forces (reservists) who travelled more than 100 miles to perform reserve services
  • Health savings account (HSA) contributions you made with post-tax money
  • Moving expenses for active-duty members of the U.S. Armed Forces
  • The employer portion of the self-employment tax
  • Retirement account contributions for self-employed individuals and small business owners
  • The cost of health insurance premiums for self-employed workers, including dental and long-term care insurance
  • Early withdrawal penalties of savings accounts, like a certificate of deposit (CD)
  • Alimony payments for agreements that took effect before 2019 (the deduction for alimony payments was ended in 2018)
  • Contributions to a traditional IRA, as long as it’s money you already paid income tax on (learn more about how to contribute to traditional IRA)
  • The student loan interest deduction is for up to $2,500 of interest you paid on student loans
  • Tuition and fees for you, your spouse, or a dependent

There are also less-common above-the-line deductions you can write in when you complete Schedule 1:

  • The Archer MSA deduction, for health care costs incurred by self-employed people and small business employees who are covered by a high-deductible health plan (HDHP)
  • Jury duty pay that you received but gave to your employer because they continued to pay you while you served on jury duty
  • Certain expenses from renting your person property, like a car
  • The nontaxable portion of the value of medals or United States Olympic & Paralympic Committee (USOC) prize money you earn in the Olympics or Paralympics
  • Reforestation expenses and amortization of timber property, up to a value of $10,000
  • Repayment of supplemental unemployment benefits
  • Contributions you make to a 501(c)(18)(D) employee-funded pension plan
  • Contributions by chaplains to 403(b) retirement plans
  • Attorney fees and court costs you paid to recover a judgment or settlement for a claim of unlawful discrimination against you
  • Attorney fees and court costs you paid in connection with an award (known as a whistleblower award) you got from the IRS for helping it detect tax law violations

Below-the-line deductions

After you take any above-the-line deductions and find your AGI, you can claim below-the-line deductions. First, you can take the standard deduction, which is technically a below-the-line deduction because you take it after finding your AGI, but people rarely talk about the standard deduction by saying it’s above or below the line. Everyone can claim the standard deduction. It’s a set amount based primarily on your filing status.

When people talk about below-the-line deductions, they’re usually talking about itemized deductions. If you spend enough on certain types of expenses, such that the total you spent exceeds your standard deduction, you can choose to itemize deductions instead of taking the standard deduction. Even if you have the types of expenses that are eligible to itemize, you shouldn’t actually itemize unless you have so much that the combined value is more than the standard deduction.

There is one other below-the-line deduction: the qualified business interest deduction, also called the QBI deduction. You can claim the QBI deduction whether or not you itemized deductions. You just need to meet its requirements, which include having certain kinds of business or investment income.

The standard deduction

Everyone can claim the standard deduction (with very few exceptions), and your standard deduction is based on your filing status. If you’re blind or 65 or older, you can also claim an additional standard deduction, the amount of which also varies based on your filing status.

Below are the standard deduction amounts for 2020 taxes, which you file in early 2021, and for 2019 taxes, which you file in early 2020.

2020 standard deductions

Filing statusStandard deduction amount
Single$12,400
Married filing jointly$24,800
Married filing separately$12,400
Head of household$18,650
Qualified widow(er)$24,800

2019 standard deductions

Filing statusStandard deduction amount
Single$12,200
Married filing jointly$24,400
Married filing separately$12,200
Head of household$18,350
Qualified widow(er)$24,400

Itemized tax deductions

You can claim itemized deductions by filling out Schedule A and attaching it to your Form 1040. There aren’t many expenses that are eligible to itemize, but the seven most common itemized deductions include the following:

There is also space to write in and deduct miscellaneous losses and payments. These are less common, with examples including gambling losses, any federal estate tax you paid on another person’s income, and casualty or theft losses from an income-producing property. The IRS instructions for Schedule A list all of the possible miscellaneous itemized deductions.

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About the author

Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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