Increase Your Tax Refund With Above-the-Line Deductions

Each year, many Americans fastidiously record their charitable contributions, mortgage interest, property taxes, and various other expenses in hopes of clearing the dollar threshold that will enable them to claim itemized deductions that are greater than the standard deductions. But beyond those itemized deductions, certain other deductions can be declared, even if the taxpayer is unable to itemize them. Such expenses are known as above-the-line deductions.

What Are Above-the-Line Deductions?

Above-the-line deductions are expenses that are deducted to calculate an individual's adjusted gross income (AGI). These differ from itemized deductions, which are the dollar amounts deducted from the determined AGI. The following examples represent above-the-line expenses:

  • Domestic Production Activities: Up to 9% of activities related to the domestic production of certain goods or services, such as engineering or architectural concerns, may be deducted under certain conditions.
  • Retirement Plan Contributions: All contributions made to traditional IRAs and qualified plans such as 401(k), 403(b), and 457 plans are deductible. Taxpayers with incomes above a certain level who contribute to both a traditional IRA and a qualified plan are subject to a graduated phaseout reduction on the deductibility of their IRA contributions.
  • HSA, MSA Contributions: All contributions to Health Savings Accounts and Archer Medical Savings Accounts are fully deductible, as long as taxpayers do not have access to any kind of group policy coverage, including that offered by fraternal or professional organizations. The purchase of a qualified high-deductible health insurance policy is also required.
  • Health Insurance premiums: The cost of premiums paid for individual health insurance policies, including high-deductible policies, are fully deductible for self-employed taxpayers. As with HSAs and MSAs, the taxpayer cannot have access to group health coverage.
  • Self-Employed Business Expenses, SE Tax: Virtually any expense related to the operation of a sole proprietorship is deductible on Schedule C. This includes rent, utilities, the cost of equipment and supplies, insurance, legal fees, employee salaries, and contract labor. This also includes one-half of the self-employment tax that must be paid on this income.
  • Alimony: Payments made to a spouse pursuant to a divorce decree that are not classified as child support usually count as alimony. Payments of this type are deductible from gross income unless they are "made under a divorce or separation agreement executed after Dec. 31, 2018" or were modified in certain ways after that date. If your divorce agreement predates that date, check with your accountant to confirm that alimony payments are still deductible. This change came as part of the Tax Cuts and Jobs Act of 2017.
  • Educator Expenses: These include unreimbursed qualified expenses of up to $250 ($500 for joint filers if both fall under this category). Qualified expenses include teaching supplies, books, and other ordinary expenses commonly associated with education. This deduction is available to educators who teach grades K-12 who work at least 900 hours during the year.
  • Early Withdrawal Penalties: Any penalties paid for the early withdrawal of money from a CD or savings bond that is reported on Form 1099-INT or 1099-DIV can be deducted.
  • Student Loan Interest: All interest paid on federally-subsidized student loans up to a certain amount is deductible, provided the taxpayer's income does not exceed the annual limits. For 2019, those limits are $85,000 for single, head-of-household, or qualifying widower filers and $170,000 for joint filers.
  • Tuition and Fees: In some cases, it is more advantageous for taxpayers to deduct the costs of tuition and other educational expenses paid to qualified educational institutions than to claim an educational tax credit.

The Bottom Line

Any or all of these deductions can be taken in addition to the itemized deductions for eligible taxpayers. Of course, there are rules and limitations that must be observed. For more information on above-the-line deductions, read the instructions for Form 1040 on the IRS website or consult your tax advisor.

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  1. Internal Revenue Service. "2019 Instructions for Form 8903: Domestic Production Activities Deduction," Pages 1, 3-4.

  2. Internal Revenue Service. "Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)."

  3. Internal Revenue Service. "Types of Retirement Plans."

  4. Internal Revenue Service. "Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)," Pages 1-2.

  5. Internal Revenue Service. "Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans," Pages 2-3.

  6. Internal Revenue Service. "2019 Instructions for Schedule A: Itemized Deductions," Pages 1-2.

  7. Internal Revenue Service. "2019 Schedule C: Profit or Loss from Business," Page 1.

  8. Internal Revenue Service. "2019 Instructions for Schedule C: Profit or Loss from Business," Page 8.

  9. IRS. "CLARIFICATION: Changes to deduction for certain alimony payments effective in 2019."

  10. Internal Revenue Service. "Topic No. 458: Educator Expenses."

  11. Internal Revenue Service. "Publication 550: Investment Income and Expenses," Page 18.

  12. Internal Revenue Service. "Publication 970: Tax Benefits for Education," Pages 34-36.

  13. Internal Revenue Service. "Publication 970: Tax Benefits for Education," Page 39.

  14. Internal Revenue Service. "1040 (2019) Instructions."

  15. Internal Revenue Service. "About form 1040, U.S. Individual Income Tax Return."

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