Above the Line Deductions

Question 1

What is an Above The Line deduction

Answer 1

These are items that subtract from gross income to calculate your AGI
- They are not itemized deductions or standard deductions

Question 2

Calculating Gross Income

Answer 2

• W2
• 1099
• dividends
• capital gains
• unemployment income
• retirement distributions
• social security income
• other monetary income or compensation

Question 3

Reaching AGI

Answer 3

Take Gross Income and subtract “Above the Line Deductions” to arrive at AGI

Question 4

What are the Above the Line deductions

Answer 4

• Educator expenses
• job expenses for performers
• Unreimbursed job expenses - state and local officials
• HSA deductions
• 50% of SE Tax
• SIMPLE / SEP/ 401K contributions
• Health insurance you paid (self employed)
• Penalty from early withdrawals
• Alimony Paid
• IRA deduction (limited)
• Student Loan Interest
• Tuition and Fees

Question 5

Educator Expenses

Answer 5

Up to $250 (500 if both spouses are teachers) of out of pocket expenses - qualified

• K-12
• Teacher, instructor, counselor, principle, aide
• work 900 hours a year

Question 6

job expenses for performers

Answer 6

This is for performers who work as employees

Question 7

Unreimbursed job expenses - state and local officials

Answer 7

Those employed by the a state government and are paid by fees at least in part. a salaried government official would not qualify

Question 8

HSA Deductions

Answer 8

• Must have a high deductible plan:

Minimum 1,400 - max 3600 - individuals
Minimum 2,800 - max 7,200- family
1,000 catch if over 55

• an employers contribution is not taxable income, but does count toward your max for the year

Question 9

50% SE Tax

Answer 9

You can claim 50% of what you pay in SE tax

• SE Tax is 15.3% so 1/2 can be deducted as an above the line deduction

Question 10

SIMPLE Contributions

Answer 10

• Can not exceed 14K in 2021
• Can catch up 3,000 - 50 and over
• Usually for small employers
• ## It is an IRA account

Question 11

SEP Contributions

Answer 11

Self employed business owners

• 25% of your compensation
• 20% of your net income
• can’t exceed 58,000

Question 12

401K Contributions

Answer 12

Traditional - contributions deducted from gross income
Roths 401K - contributions are deducted from employees after-tax income

• It is a defined contribution plan
• 19,500 per person - 20,500 2022 -
• 6,500 catch up

-Employers can match - up to 100% of employee compensation or 58,000 - 64,500 with the catch up

Question 13

Health Insurance you pay

Answer 13

This is for self-employed health insurance

- if you deduct as an above the line then you can not itemize them as well

Question 14

Penalty from early withdrawal

Answer 14

This is only for withdrawl of savings - like a CD

- Not if you have a 10% penalty on your 401K

Question 15

Alimony

Answer 15

you can deduct alimony if the divorce decree was from before 1/1/2019

Question 16

IRA deduction

Answer 16

Can deduct 6,000 if younger than 50 and 7,000 if older than 50

• The limit is for a year - can be in multiple IRAs

Traditional - you can do if you do not have a retirement plan at work - deduct from AGI

• If you do not have an employer -sponsored plan you can deduct up to the specified limit IF you make less than the limit (64-74 single) and 103-123 MFJ
• You can contribute up to the limit, but your tax deductibility of your contribution is limited to your income

Question 17

Student Loan Interest

Answer 17

Can deduct up to 2,500

• must be qualified expenses
• you paid interest during the year
• you are legally obligated to pay it
• you aren’t married filing separate
• you cant be claimed as a dependent on another return
• Your MAGI is less than a certain amount

Question 18

Tuition and Fees

Answer 18

Up to 4,000 for qualified tuition

• you your spouse and dependents
• room, board, books
• reduce by scholarships you received
• limit 60K/130K - 80K/160K S and MFJ

Question 19

What is the difference between a SIMPLE and SEP plan

Answer 19

SIMPLE - higher contribution limit than a traditional IRA. . For owners and employees. Limit is 13,500K with catch up of 3K. Must give to all qualified employees.

SEP - this is for self employed. you can contribute up to 25% of your salary into it in a given year.