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Doing your taxes is a hunt for ways to minimize your income: The lower your income, the less tax you pay. For most retirees and pre-retirees, this means taking the standard deduction and moving on to computing the tax you owe. But there are a handful of deductions that you may be able to claim even if you don’t itemize your deductions. They’re called above-the-line deductions, and they can be your friends at tax time.
What’s “the line”? That would be line 11 on IRS Form 1040, which is where you put your adjusted gross income (AGI). The first line below that, line 12, is where you would put your itemized deductions from Schedule A. But most people don’t itemize their deductions: About 15.5 million taxpayers itemized in 2020, down from 45 million in 2016, according to the Internal Revenue Service (IRS).
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The big drop in itemized returns can be attributed to the Tax Cuts and Jobs Act of 2017, which raised the standard deduction dramatically starting in tax year 2018. Today, individuals can claim a $12,950 standard deduction, and married couples can claim $25,900. It’s $19,400 for heads of households. For each taxpayer 65 and older or blind, the standard deductions goes up another $1,400 ($1,750 for single filers and heads of households). Unless you have more itemized deductions than the standard deduction, it makes no sense to itemize.
But if you are eligible for above-the-line deductions, you can deduct them before you calculate your adjusted gross income, no matter how small those deductions are. And many people have at least one above-the-line deduction that fits them. Many of these above-the-line deductions are calculated using the Schedule 1 — Additional Income and Adjustments to Income — worksheet included in the 1040 instructions and reported on line 10 of your tax return — one line above your adjusted gross income.
Common above-the-line deductions
1. Alimony paid
If you divorced before 2019 and are still paying alimony, your payments are an above-the-line deduction. (For the recipient, that alimony is taxable income.) If you were divorced on or after Jan. 1, 2019, you can’t deduct your alimony payments, and the recipient doesn’t have to pay taxes on them.
If you alter your divorce agreement to say that the new rules apply, then the new rules will apply to your payments.