What does 'above-the-line' versus 'below-the-line' deduction actually mean?
The 'line' refers to adjusted gross income (AGI) on your Form 1040. Above-the-line deductions, officially called adjustments to income, are subtracted before AGI is calculated. Examples include traditional IRA and HSA contributions, self-employment tax, and student loan interest. You can claim these even if you take the standard deduction, and because they lower AGI, they can also help you qualify for other income-tested breaks. Below-the-line deductions come after AGI and include the standard deduction or itemized deductions like mortgage interest and charitable gifts; you choose one or the other, not both. Because above-the-line deductions are more flexible and reduce AGI, tax planners prize them. The IRS lists the current adjustments on Schedule 1.
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