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Five Ways to Claim Deductions “Above the Line” Common write-offs that may provide other tax benefits

Do you know the difference between deductions claimed “above” and “below” the line? In this case, “the line” is the point where your adjusted gross income (AGI) is computed on your federal tax return. Thus, deductions claimed above the line are entered before your AGI is determined while other familiar deductions—such as mortgage interest and charitable gifts—are claimed after the AGI computation is made.

Just think about the implications. An above-the-line deduction is more valuable because it reduces your AGI for various purposes. So you may qualify for other tax benefits, such as higher education tax credits or medical expense deductions. And above-the-line write-offs are available whether the tax filer itemizes deductions or not.

Which deductions can be claimed above the line on 2007 tax returns? Here are five common possibilities:

1. IRA contributions: You may be able to deduct IRA contributions unless you “actively participate” in an employer-sponsored retirement plan. In that case, deductions for 2007 are phased out for single filers with an AGI between $52,000 and $62,000; $83,000 and $103,000 for joint filers if both spouses are active participants. If only one spouse is an active participant, the deduction is phased out between $156,000 and $166,000 of AGI. The maximum contribution for 2007 is $4,000 ($5,000 if age 50 or older).

2. Tuition and fees: You can deduct as much as $4,000 of tuition and related fees paid for higher education, if you fall below certain income limits. The $4,000 deduction is available for single filers with an AGI up to $65,000; $130,000 for joint filers. Otherwise, single filers can claim a $2,000 deduction for an AGI up to $80,000; $160,000 for joint filers.

3. Moving expenses: If you make a job-related move, you can deduct moving expenses under two conditions: (1) The new workplace must be 50 miles farther from your old home than your old workplace was from your home. (2) You generally must stay at the new job for at least 39 weeks of the next 12 months. Assuming you qualify, you can deduct the cost of transporting household goods and personal effects, plus related travel and lodging expenses (but not meals).

4. Student loan interest: A taxpayer who is paying off a student loan for higher education may deduct up to $2,500 of the interest on his or her tax return. This deduction is phased out for a single filer with an AGI between $55,000 and $70,000; $110,000 and $140,000 for joint filers. Note: Your child can deduct the interest on any portion of the loan you repay as long as he or she cannot be claimed as your dependent.

5. Self-employment tax: If you are a self-employed individual, you may claim several tax types of deductions above-the-line. This includes 50% of the required annual self-employment tax and 100% of health insurance coverage. Similarly, you can deduct your annual contributions to a qualified retirement plan—such as a SEP (Simplified Employee Pension), SIMPLE (Savings Incentive Match Plan for Employees) or Keogh—within generous limits.

This is not the complete list, by all means. For more details, contact a tax professional.

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