You probably know that claiming income tax deductions reduces your taxable income. But did you know that not all deductions are created equal? Let’s learn about the advantages of above-the-line deductions vs. itemized deductions.
At a glance:
- Above-the-line deductions are adjustments to your taxable income, subtracted before AGI calculation. They can be claimed even if you take the standard deduction, offering more flexibility.
- Itemized deductions are not available to those who take the standard deduction. These expenses are only deductible if you choose to itemize.
- Deciding whether or not to itemize depends on your unique tax situation and which option would save you the most money.
What does above-the-line mean?
Maybe you’ve heard the term “above the line” thrown around in tax conversations. Above-the-line deductions are actually adjustments to your taxable income — they are subtracted from your income before your adjusted gross income (AGI) is calculated for tax purposes.
However, the number of above-the-line deductions you take directly affects the amount and type of “below-the-line” deductions for which you’re eligible. Below-the-line deductions, more commonly known as itemized deductions, include any deduction reported beneath the line for AGI calculation on your tax return.
What’s so special about my AGI?
Quite a lot! Your adjusted gross income is used for many calculations on your tax return. For example, you can only deduct medical expenses as itemized deductions to the extent they exceed 7.5% of your AGI.
Every dollar that reduces your AGI reduces your taxable income, but it may also help you qualify for other deductions. Various tax credits are limited by your AGI as well. In some cases, an adjustment may help you qualify for a tax credit or other tax benefit that you would not receive otherwise.
Advantages of above-the-line tax deductions
While both above-the-line and itemized deductions ultimately reduce your taxable income, some deductions can have a more favorable impact on your tax bill than others. In most cases, above-the-line deductions are the better choice. Here’s why.
1. You can take above-the-line deductions even if you don’t itemize.
The best part of above-the-line deductions? You can claim them even if you take the standard deduction, a fixed amount based on your tax filing status with the IRS. For tax years 2024 and 2025, the standard deduction numbers are:
| Tax filing status | Standard deduction 2024 | Standard deduction 2025 |
|---|---|---|
| Single | $14,600 | $15,750 |
| Head of Household | $21,900 | $23,625 |
| Married filing jointly and surviving spouse | $29,200 | $31,500 |
| Married filing separately | $14,600 | $15,750 |
Each tax season, you have the choice to itemize your deductions or take the standard deduction. Typically, you’d want to choose whichever amount is higher, which tends to be the standard deduction for most taxpayers. When e-filing with TaxAct®, we ask you detailed questions to help determine which option should save you the most money.
You can claim above-the-line deductions on page two of Schedule 1.
2. Above-the-line deductions reduce your AGI.
Your adjusted gross income (AGI) is the amount listed on the bottom line of page one of your income tax return (Form 1040). It includes your total income, including wages, business and rental income, capital gains, unemployment income, and so on. It also factors in any itemized deductions you listed on your Form W-4.
Since above-the-line deductions are adjustments to your income, they can also refer to business deductions and losses. For example, a business expense reduces your net business income, reducing your total income.
Above-the-line adjustments to claim on your 2024 return
Wondering what above-the-line deductions you might qualify for this year? Check out our list of common deductions you may qualify to claim:
Self-employment deductions
- Health insurance deduction
- The deductible portion of self-employment taxes (generally 50% of the tax)
- Contributions to self-employed retirement plans such as SEP, SIMPLE IRA Plans, and qualified plans
Education deductions
- Student loan interest paid on a qualified student loan for yourself, your spouse, or your dependent
- Educator expenses (i.e., school supplies purchased by a teacher for their classroom)
Travel deductions
- Moving expenses for certain members of the Armed Forces
Other possible deductions:
- Health Savings Account (HSA) deductions
- Any penalties paid on early withdrawal from a savings account before it matures
- Write-in adjustments, such as the Archer MSA deduction or jury duty pay you turned over to your employer because your employer paid your salary while you served
To itemize or not to itemize?
Most deductions fit neatly into above-the-line or itemized deductions, and you don’t have to worry about where to deduct them. But sometimes, you do get to choose where to deduct an expense — either as an above-the-line deduction or an itemized deduction. So which type is better?
Let’s look at an example:
You can deduct the real estate tax paid on your home as an itemized deduction. However, if you’re a small business owner, you may qualify to deduct a portion of your real estate tax as a business expense. In most cases, you’re better off taking an expense as a business deduction whenever possible. Not only is it an above-the-line deduction, but it may also reduce the amount of self-employment tax you pay.
Another example is self-employed health insurance. As discussed above, these health insurance premiums can be deducted as an above-the-line deduction or as an itemized deduction. However, if you choose to itemize, you must reduce your total medical expenses (including insurance premiums) by 7.5% of your AGI. You must do this before you include medical expenses with your itemized deductions. For this reason, you’ll likely benefit more by taking the self-employed health insurance deduction as an above-the-line income adjustment if you qualify.
The bottom line
Understanding the differences between above-the-line and itemized deductions can help you make smarter tax decisions and keep more money in your pocket. Above-the-line deductions offer greater flexibility since you can claim them even if you take the standard deduction, while itemized deductions may save you more in specific situations. The key is to evaluate your unique tax scenario each year to determine which options work best for you. With this knowledge, you’ll be well on your way to knowing how to file taxes like a pro.
