Definition
In the United States tax law, an above-the-line deduction is a deduction that the Internal Revenue Service allows a taxpayer to subtract from his or her gross income in arriving at “adjusted gross income” for the taxable year. These deductions are set forth in Internal Revenue Code Section 62. A taxpayer’s gross income minus his or her above-the-line deductions is equal to the adjusted gross income. Because these deductions are taken before adjusted gross income is calculated, they are designated “above-the-line.” Thus, those deductions allowed in computing “taxable income” under section 63 of the IRC are “below the line deductions”. Above-the-line deductions may be more valuable to high income taxpayers than below-the-line deductions.
Above The Line Deduction
What is ‘Above The Line Deduction’
Above the line deductions are certain types of deductions that are subtracted from your income before the adjusted gross income is calculated for tax purposes.
Explaining ‘Above The Line Deduction’
Above the line deductions include such items as losses on a property sale, alimony payments and educational expenses. Since above the line deductions are generally deducted from taxable income, they are advantageous to taxpayers in the sense that they reduce the overall tax burden.
Further Reading
- Tax and Economic Policy Responses to the Medicaid Long-Term Care Financing Crisis: A Behavioral Economics Approach – heinonline.org [PDF]
- Beyond tax relief: Long-term challenges in financing higher education – www.jstor.org [PDF]
- Economic Value Added as a measurement tool of financial performance – www.sciencedirect.com [PDF]
- Federal financial aid for higher education: Programs and prospects – vtechworks.lib.vt.edu [PDF]
- Taxes and corporate finance: A review – academic.oup.com [PDF]
- Determinants of consumer financial risktaking: Evidence from deductible choice – papers.ssrn.com [PDF]
- Corporate taxation, debt financing and foreign-plant ownership – www.sciencedirect.com [PDF]
