Thanks to much larger standard deduction amounts under the Tax Cuts and Jobs Act (TCJA), fewer filers are itemizing deductions.
But that doesn't mean they aren't still writing off some tax-deductible expenses.
During this first filing season after the many changes wrought by the latest tax reform law, taxpayers are still claiming what used to be called above-the-line deductions.
Technically, they are and always have been adjustments to income. They got the above-the-line moniker because they previously appeared in the last section of the old long Form 1040, just above the last line of that form's first page where your adjusted gross income (AGI) was entered.
These deductions are still around. But perhaps we should call them Schedule 1 deductions, since they now appear on that new attachment to the revised Form 1040.
Deductions for all: Despite the change in form location, these deductions/income adjustments still can be claimed by eligible taxpayers, regardless of whether they itemize tax deductions on Schedule A or opt to use the standard deduction that applies to their filing statuses.
If you qualify to claim them, they can save you hundreds, perhaps thousands even, of tax dollars. How? They lower a filer's adjusted gross income.
The less money that's taxed, the less you owe Uncle Sam. Sometimes, a lower AGI also makes taxpayers eligible for income-determined tax credits, which reduce your tax bill dollar for dollar.
Below is a quick look at the 11 above-the-line deductions/adjustments to income as they now appear on Schedule 1.
1. Educator expenses (line 23): 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 2018. 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 here.
Chances are you'll have more than the $250 (or $500 joint filer) limit. Sorry. Before the TCJA you could the excess as an itemized miscellaneous expense on Schedule A. That added write-off is no longer available.
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.
2. Certain business expenses (line 24): Don't get too excited thinking this might make up for the now-gone miscellaneous business expenses deduction. Schedule 1 notes that 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.
3. Health savings account deduction (line 25): 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.
4. Moving expenses for members of the Armed Forces (line 26): Folks who've claimed this tax break in the past probably have notice the added info on this line's description. It previously was shown only as moving expenses. The TCJA, however, changed that. Now relocation costs are limited to military personnel who are on active duty and who move pursuant to a military order related to a permanent change of station. These relocating U.S. Armed forces members also will have to fill out Form 3903 to detail their eligible costs, the total of which go here.
5. Self-employment tax (line 27): 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. You'll have to include your Schedule SE, too.
6. Self-employed SEP, SIMPLE, and qualified plans (line 28): 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.
7. Self-employed health insurance deduction (line 29): One more break for the independent worker. If you paid for your own medical policy, those premiums are fully deductible here. The insurance also can cover your child who was under age 27 at the end of 2018, even if the child wasn't your dependent. If you don't use a tax pro or tax software, there's a worksheet for the self-employed insurance deduction in the Form 1040 Schedule 1 instructions (page 91).
8. Penalty on early withdrawal of savings (line 30): 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.
9. Alimony paid (line 31): This is a holdover from the prior long Form 1040, hence the small letter "a" notation that got transferred to the Schedule 1. Under the TCJA, the deduction for alimony payments will remain in effect for folks with divorce agreements reached in 2018 or before. In these cases, you'll need to also pay attention to the "b" part of line 31, which is the Social Security number (SSN) of the ex getting the payment.
However, the new tax law says that subsequent alimony payments awarded in divorce decrees finalized in 2019 through 2025 are no longer tax deductible. Also as part of the TCJA changes, the tax treatment of ex-spouses who receive alimony has changed. These spousal payments are no longer considered income to the recipient for marital splits after Dec. 31, 2018. That means the IRS doesn't need their SSNs to double check that they reported it as income.
10. IRA deduction (line 32): If you have a traditional IRA, you might be able to deduct some or all of your contribution. This Schedule 1 deduction depends on many variables, such as income and workplace retirement plans. Again, there's a worksheet on page 94 of the form's instructions.
11. Student loan interest deduction (line 33): Write off up to $2,500 in interest on your school debt here. Yes, there's yet another worksheet (page 96) to make sure you qualify and figure how much you can enter here.
Tuition and fees possibly OK again in the future: Schedule 1 also has a couple of lines reserved for possible future income adjustment adjustments, most notably the tuition and fees deduction.
This educational tax break is part of the package of tax laws known as extenders that expired at the end of 2017. When it was in effect, it allowed eligible taxpayers to claim up to $4,000 of specified schooling costs. If Congress does renew it, this tax break it will be claimed here.
The renewal, however, isn't going to happen by next Monday, April 15, so you'll be able to use this only if you get an extension to file your taxes. If you've already filed and can claim tuition and fees when it's back in the tax code, you'll need to file an amended return (Form 1040-X).
Another former adjustment to income, the claim for domestic production activities, used to go on line 35. It was repealed, but the line remains on Schedule 1 as one reserved for special tax situations ("domestic production activities deduction from a fiscal-year pass-through entity") or for future form use.
More miscellaneous adjustments: OK, we're done with Schedule 1 deductions, right? Wrong.
Line 36 of Schedule 1 says "Add lines 23 through 35. Do that, but also check the instructions one more time, this time pages 96 and 97. Reading tax instructions is something you do all the time, right?
There you'll find that the IRS has jammed 11 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 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."
- Fiscal-year pass-through entities that have a domestic production activities deduction generated in a tax year beginning before December 31, 2017 (see Form 8903). Identify as "DPAD."
Yes, most of these additional 11 costs you can claim are arcane and can add to your total on Schedule 1 line 36 probably won't apply to you. But they also are why you should at least glance at the instructions, or at least check out the ol' tax blog.
If you are one of the few who can claim these tax breaks added at the end Schedule 1, be sure to take advantage of them when you file this year.
That same advice goes for all 22 of these deductions/income adjustments, the 11 enumerated on their on special lines and the catch-all 11 at the end.
Make sure you don't miss any that apply to your tax circumstances.
Even if they require you to do a bit more tax calculating and fill out another form or two, the added work could cut your tax bill. And that's the ultimate goal of all of us every tax filing season.