The larger standard deduction under the Tax Cuts and Jobs Act (TCJA) that took effect this year has gotten a lot of attention.
One of the big pluses, cite fans of the new nearly doubled standard deduction amounts, is that more people will claim them instead of itemizing tax deductible expenses.
But regardless of whether you itemize now, plan to under the new tax law or never ever messed with a Schedule A and don't plan to start, there still are some tax deductions you can claim.
They are what are popularly known as above-the-line deductions found directly on 1040 and 1040A returns.
And while the new tax law made some significant changes to itemized claims, it left the above-the-line tax deductions essentially untouched.
Lines, adjustments and deductions: Technically, these deductions are adjustments to income found in the last section on page 1 of both the long Form 1040 (lines 23 through 36) and, to a lesser degree, on the shorter Form 1040-A (lines 16 through 19).
They get their nickname because they are taken into account just before the last line on the first pages of those two 1040s. That last line on those pages is where you figure your adjusted gross income, hence the section on each return is called Adjusted Gross Income.
Whatever you call these tax breaks, and I'm just going to call them deductions, just be sure to take them if you can.
They help get your total, gross income (shameless plug: check out the definition in the ol' blog's glossary) to a smaller adjusted gross income (AGI) level. And that's the first step on getting to the lowest possible taxable income level so that you'll owe Uncle Sam as little as possible.
So what above-the-line deductions can you claim to arrive at your AGI?
As the excerpt from Form 1040 above shows, there are 14 lines — yes 14; line 36 counts, too — on which you can claim above-the-line deductions.
Below are some highlights of these claims that you can take on your 2017 tax return, along with information (in indented italics) about each deduction's status under the new tax law. The TCJA individual tax provisions are temporary; most took effect with the start of the 2018 tax year and will end after the 2025 tax year, unless lawmakers then extend them.
Line 23, Educator expenses: Eligible educators (more on this in a minute) can deduct here up to $250 (adjusted annually for inflation) of qualified unreimbursed classroom expenses you paid out-of-pocket in 2017. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses on line 23.
If you have more than the $250 (or $500 joint filer) limit, you can claim the excess as an itemized miscellaneous expense on Schedule A on your 2017 return. Note, however, that to claim this deduction, your total miscellaneous business expenses must exceed 2 percent of your AGI.
As for who is an eligible educator, the IRS says this includes kindergarten through grade 12 teachers, instructors, counselors, principals or aides who worked in a school for at least 900 hours during a school year.
The educator expenses above-the-line deduction remains in effect for 2018 through 2025 under the Tax Cuts and Jobs Act. However, the option to claim any excess no longer exists. That itemized deduction was eliminated effective with the start of this year.
Line 24, Certain business expenses: These write-offs are limited to folks in special job categories, specifically military reservists, performing artists and fee-basis government officials. Also, reserve military personnel can only use this for costs incurred when they travel more than 100 miles from home to perform services as a National Guard or other armed forces reserve member. All taxpayers who take this deduction also will need to fill out Form 2106 or 2106-EZ.
The business expenses income adjustment for military reservists and other specific taxpayers remains in effect for 2018 through 2025 under the Tax Cuts and Jobs Act.
Line 25, Health savings accounts: Here you can write off your contributions to one of these medical coverage plans, commonly referred to as HSAs. However, you'll need more paperwork here, too: Form 8889.
HSA contributions remain deductible here under the Tax Cuts and Jobs Act.
Line 26, Moving expenses: If you move to take a new job or get one within a specified period, many of your relocation costs can be deducted from your gross income on this line. Check out Form 3903 for details and to determine your above-the-line deductible amount.
Starting in 2018, the moving expense gets trimmed under the Tax Cuts and Jobs Act. Effective this tax year (and through 2025), only active members of the military can claim relocation expenses related to their service posting changes.
Line 27, Self-employment tax: If you worked for yourself, either full-time or as a side job to bring in some extra spending money, you likely had to pay self-employment tax. Half of that amount can be subtracted here.
The TCJA didn't change this above-the-line deduction, leaving the self-employment adjustment in place as is.
Line 28, Self-employed retirement plan contributions: Staying in the be-your-own-boss vein, if you were able to contribute to a retirement plan (e.g., SEP-IRA or Keogh), note that amount here.
Just like with the SE tax, the new tax law left in place the ability to deduct your self-employed retirement account contributions.
Line 29, Self-employed health insurance premiums: One more break for the independent worker. If you paid for your own medical policy, those premiums are fully deductible here.
This working-for-yourself income adjustment also remains under the TCJA.
Line 30, Early savings withdrawal penalties: If you had to cash in a CD or other savings account and paid a price for getting your money from your bank, you can write off that fee here.
The TCJA continues this bit of penalty relief as an above-the-line deduction for 2018 through 2025.
Line 31, Alimony: This income adjustment is for the ex-spouse paying alimony, not the recipient. If you're the one paying, you can deduct this support money — but not any funds you paid to take care of your kids.
For the 2018 tax year, the alimony payment above-the-line deduction remains. However, it disappears for those divorced in 2019 through 2025.
Line 32, IRA contribution: If you have a traditional IRA, you might be able to deduct some or all of your contribution.
The above-the-line deduction remains in 2018 through 2025 for traditional IRA contributions.
Line 33, Student loan interest: Write off up to $2,500 in interest on your school debt here. This write-off is on line 18 of the 1040A.
The above-the-line deduction for interest paid on college loans was considered for possible elimination during the TCJA debate, but it survived Congressional cutting and remains in effect for tax years 2018 through 2025.
Line 34, Tuition and fees: If you can claim the tuition and fees tax break, you can enter up to $4,000 of those costs here. Use Form 8917 to determine your deduction amount. Taking a good look at this above-the-line deduction. This filing season could be the last time it's available. It technically was a tax extender that expired at the end of the 2016 tax year, but was resurrected for the 2017 tax year only as part of the federal budget bill approved in February.
The tuition and fees tax break wasn't in the Internal Revenue Code when Congress considered the TCJA and it wasn't added back into law during the tax reform bill's debate. Since its renewal is for 2017 only, Congress must decide this year whether it wants to make it available for 2018 and beyond.
Line 35, Domestic production activities: This very specific line item is for taxpayers in the construction, farming or even some artistic fields (films and recordings). If you manufacture your product within U.S. borders, this deduction could help you get to a lower AGI amount. Form 8903 is needed to claim this tax break.
OK, a look at the Form 1040 excerpt above indicates that the 13th above-the-line deduction on line 35 is the last one, right? Wrong!
This somewhat arcane tax break remains in effect under the TCJA for 2018 and beyond.
Line 36, Add lines 23 through 35: Do add all the above-the-lines you claimed before you got to this line, but also check the Form 1040 instructions. (You do read all the tax instructions, don't you?)
There you'll find that the IRS has jammed 10 more above-the-line deduction options that can be claimed here. They are:
- Archer MSA deduction (see Form 8853). Identify as "MSA" on line 36.
- Jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury. Identify as "Jury Pay."
- Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Identify as "PPR."
- Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 21. Identify as "USOC."
- Reforestation amortization and expenses (see IRS Publication 535). Identify as "RFST."
- Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see IRS Publication 525). Identify as "Sub-Pay TRA."
- Contributions to section 501(c)(18)(D) pension plans (see IRS Publication 525). Identify as "501(c)(18)(D)."
- Contributions by certain chaplains to section 403(b) plans (see IRS Publication 517). Identify as "403(b)."
- Attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from such actions (see IRS Publication 525). Identify as "UDC."
- Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations, up to the amount of the award includible in your gross income. Identify as "WBF."
OK, the many arcane tax breaks here is why you don't read the instructions. Most of these above-the-line deductions available to be added on line 36 probably won't apply to you.
But they also are why you should read the instructions, or at least the ol' tax blog. If you are one of the few who can claim these tax breaks, be sure to take advantage of them when you file this year.
These assorted above-the-line deductions were untouched by the TCJA.
Form 1040A AGI adjustments: Four of the most-commonly claimed above-the-line deductions also are found on the 2017 edition of the 1040A tax return.
The claiming requirements and any TCJA changes are the same in the adjusted gross income section of Form 1040A as on the long 1040 for:
- Line 16, Educator expenses
- Line 17, IRA contribution
- Line 18, Student loan interest
- Line 19, Tuition and fees
If one (or more) of these four above-the-line deductions are the only ones that apply to your tax situation and you don't need the longer return for other tax claims, then file the shorter Form 1040A.
Deductions for all: Finally, even if you do itemize, this tax season or under the revised Schedule A for 2018 and beyond, don't overlooks the above-the-line deductions.
These income adjustments can be claimed by all eligible taxpayers regardless of which deduction method is used.
Yes, some do require another form to complete. But the extra work generally is worth it to claim every tax break that can reduce your eventual tax bill.