Above-the-Line Deductions, Standard Deductions, and Itemized Deductions
by Susannah McQuitty
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You know that tax deductions are good for your wallet, but there are actually different types of deductions that get handled a bit differently. Above-the-line deductions, standard deductions, and itemized deductions all cut your taxable income in their own specific ways. So how do they work, and what makes them different?
Let’s start with the most basic type of deduction. The standard deduction is a fixed, base-level amount based on your filing status – married filing jointly, single, head of household, etc. – and tax situation.
If your tax picture is pretty simple, and you don't have a lot of special circumstances that would make it more beneficial to itemize deductions (more on that below), you'll probably get the standard deduction.
For the 2016 tax year, the standard deduction is $6,300 for single or married filing separate, $12,600 for married filers, and $9,300 for head of household filers. Those amounts go up if you're over 65, blind, or both.
While the standard deduction kind of covers your basis, some tax situations make it more beneficial to itemize deductions. Itemizing deductions means that you list out all your qualifying deductions specifically instead of taking the standard deduction for your filing status.
You don’t want to itemize unless the sum of your specific deductions is more than the standard deduction, but itemizing deductions actually unlocks more tax breaks. Here, for example, are some of the more common itemized deductions:
- Business travel expenses – These are for any expenses you had that your company didn’t reimburse you for. Read more about business travel deductions here.
- Mortgage expense – This can include mortgage interest and mortgage insurance premiums.
- Gifts to charity – If you can itemize, you can deduct the fair market value of the spare TV you donated to the animal shelter’s thrift store, as well as cash donations to a church or other qualifying 501(c)(3) nonprofit organization.
- Casualty or theft loss – The thief got your car stereo, but you could get a deduction for the cost of the replacement.
- Medical and dental expenses – A deduction is available for unreimbursed expenses above a certain percentage of your income.
- Other taxes – You may be able to deduct the amount you’ve paid during the tax year for personal property taxes (think vehicle tax), state and local taxes, and real estate taxes.
Finally, above-the-line deductions are adaptable tax breaks, since you can claim them regardless of whether you chose standard or itemized deductions. As the simplest of the three deduction types, above-the-line deductions are really just stand-alone adjustments. These deductions include items such as:
- Education expenses – This includes tuition and fees paid by students, and some qualifying expenses for teachers.
- Moving expenses – If your move is for the purpose of taking advantage of a new job (and the move meets IRS distance requirements) you can qualify for this deduction.
- Student loan interest – If you’re paying back student loans, you can deduct your interest payments from your taxable income.
- IRA contributions – If you have a qualified IRA, portions of the amount you contribute can be deducted from income.
When you file with 1040.com, we’ll simply ask you a few questions to figure out which deductions you should claim based on your filing status and financial situation. You’ll get as many tax breaks as possible, whether from standard deductions, itemized deductions, or above-the-line deductions, as easily as possible.
For more details, take a look at our Standard vs. Itemized Deductions infographic.
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