Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions that can be claimed
in arriving at adjusted gross income (AGI) –referred to as “above-the-line” deductions — are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.
For example, for those with substantial medical expenses, the medical expense deduction on Schedule A- Itemized Deductions, is limited to 10% of your AGI. By lowering your AGI, you are increasing your medical expense deduction.
Here are some of the above-the-line deductions available for the 2019 tax year.
Traditional IRA contributions. Contributions of up to $6,000 ($7,000 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2019 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.
Extra Tax Tip for IRAs– for self-employed individuals eligible for a Qualified Business Income Deduction, (QBI) a contribution to an IRA will not reduce your qualifying business income. In contrast, contributions to other retirement plans do reduce your qualifying business income and therefore the corresponding QBI deduction.
Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors also deduct their trade or business expenses above the line on Schedule C.
Hidden rental property expense– frequently taxpayers do not provide us with the cost of the rental property insurance. It is usually paid via the escrow account if there is a mortgage on the property. Although you don’t pay this directly, it is being paid with your funds and should be deducted. Review your escrow account for other deductions.
Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phaseouts apply to those at higher levels of modified AGI.
Health savings account (HSA) contributions. The 2019 deduction limits are $3,500 for those with self-only coverage under an eligible high-deductible health plan and $6,900 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.
Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.