Above the Line Deductions Flashcards
What is an Above The Line deduction
These are items that subtract from gross income to calculate your AGI
- They are not itemized deductions or standard deductions
Calculating Gross Income
- W2
- 1099
- dividends
- capital gains
- unemployment income
- retirement distributions
- social security income
- other monetary income or compensation
Reaching AGI
Take Gross Income and subtract “Above the Line Deductions” to arrive at AGI
What are the Above the Line deductions
- 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
Educator Expenses
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
job expenses for performers
This is for performers who work as employees
Unreimbursed job expenses - state and local officials
Those employed by the a state government and are paid by fees at least in part. a salaried government official would not qualify
HSA Deductions
- 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
50% SE Tax
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
SIMPLE Contributions
- Can not exceed 14K in 2021
- Can catch up 3,000 - 50 and over
- Usually for small employers
- ## It is an IRA account
SEP Contributions
Self employed business owners
- 25% of your compensation
- 20% of your net income
- can’t exceed 58,000
401K Contributions
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
Health Insurance you pay
This is for self-employed health insurance
- if you deduct as an above the line then you can not itemize them as well
Penalty from early withdrawal
This is only for withdrawl of savings - like a CD
- Not if you have a 10% penalty on your 401K
Alimony
you can deduct alimony if the divorce decree was from before 1/1/2019
IRA deduction
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
Student Loan Interest
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
Tuition and Fees
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
What is the difference between a SIMPLE and SEP plan
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.
