How Do You Spell ABOVE THE LINE DEDUCTION?

An "above the line deduction" refers to a specific type of tax deduction that can be made in a taxpayer's income before calculating their adjusted gross income (AGI). This deduction is considered "above the line" because it is subtracted from the taxpayer's total income, above the AGI, which helps in arriving at the adjusted gross income.

An above the line deduction is deducted from an individual or business owner's total income before any other deductions or exemptions are taken into account. It is available to all taxpayers, regardless of whether they itemize deductions or take the standard deduction. Thus, this type of deduction is considered advantageous for individuals who might not have enough qualifying expenses to itemize deductions.

Common examples of above the line deductions include business expenses, self-employment taxes, alimony paid, and contributions made to retirement accounts like individual retirement accounts (IRAs) and health savings accounts (HSAs). These deductions are subtracted from the total income to arrive at the AGI, which impacts the amount of taxable income. Lowering the AGI through above the line deductions can potentially lead to a decrease in the overall tax liability of the taxpayer.

In summary, an above the line deduction refers to a deduction subtracted from a taxpayer's total income before calculating the adjusted gross income, helping to reduce the taxable income and potentially lowering the overall tax liability.