What Are Above-the-Line Tax Deductions?
Hudson, NH Resident Seeks Clarification
Above-the-line tax deductions are those qualified items that are deducted from gross income to
calculate adjusted gross income. The most common above-the-line deductions include IRA and other
qualified retirement contributions, healthcare expenses, business expenses, and student loan interest.
Above-the-line deductions can be taken even if you are not itemizing deductions when filing taxes. This
allows those who have more advantage taking the standard deduction versus itemizing to still take
advantage of these above-the-line tax savings. To calculate this, all above-the-line deductions are
combined and are then used to determine your adjusted gross income, reducing overall taxable income.
This is separate from the standard deduction or itemized deductions, which can then be taken from the
adjusted gross income.
A Hudson resident was concerned that he wasn’t taking full advantage of his tax deductions. Confused,
he contacted the team at Merrimack Tax Associates for information on above-the-line deductions and
how these might work to lower his overall tax bill.
Types of Above-the-Line Tax Deductions
Contributions to IRA retirement accounts, alimony paid, early withdrawal penalties for certificate of
deposit, contributions to a health savings account, and student loan interest payments are all
considered above-the-line deductions. This means they can reduce your adjusted gross income before
taking either the standard or itemized deductions. Taking above-the-line deductions does not affect
your ability to itemize or take the standard deduction, whichever of the two is most advantageous for
Understanding the Difference Between Above-the-Line Deductions and Itemizing Deductions
The biggest difference between Itemized deductions, sometimes called below-the-line deductions, are
that these deductions are taken from your adjusted gross income after above-the-line deductions have
already been taken. Examples of itemized deductions include unreimbursed qualified medical and
dental expenses, long term care premiums, HELOC interest, charitable donations, and mortgage interest.
Since above-the-line deductions can be taken even when you are not itemizing to reduce the adjusted
gross income, this can save significant money on taxes. The Hudson resident was pleased to now have a
better understanding of above-the-line deduction and how this could work to reduce the overall amount
of taxes paid.