(RIVERWOODS, ILL., February 17, 2011) – Whether you itemize or take the standard deduction, there are plenty of above-the-line deductions that can mean even greater tax savings, according to CCH, a Wolters Kluwer business and the leading global provider of tax, accounting and audit information, software and services (CCHGroup.com).
For 2010, the standard deduction is $5,700 for single filers ($11,400 for joint filers). Taxpayers who have expenses that exceed that amount related to unreimbursed employee expenses, tax preparation fees and other expenses such as certain taxes, interest, personal casualty and theft losses, and medical expenses, may want to determine if itemizing will save them more money. Deciding whether to itemize or take the standard deduction got a little easier for 2010 when three additional standard deductions and the Schedule L used to calculate them were, for the most part, eliminated for 2010. These additional standard deductions, generally no longer available for 2010, include standard deductions for disaster losses, real estate taxes and new motor vehicle taxes.
However, regardless of whether a taxpayer takes the standard deduction or itemizes, they can take above-the-line deductions.
“Assuming you qualify, above-the-line deductions are easy ways to substantially lower your taxes,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.
However, because not all deductions are available on all forms, taxpayers need to be certain they’re completing the form that allows them to claim the deductions to which they’re entitled. For example, taxpayers claiming an IRA deduction or deductions for three education-related expenses can use either Form 1040 or 1040A. However, taxpayers looking to claim several other above-the-line deductions, including deductions for Health Savings Accounts (HSAs) or deductions for the self-employed, can only do so on Form 1040.
Below, CCH outlines 10 common above-the-line deductions and the forms on which they’re available.
Claiming Above-the-line Deductions
Each of the following deductions can be claimed on either Form 1040 or 1040A:
- IRA deductions – The maximum deduction for an Individual Retirement Account (IRA) is $5,000 for 2010 or $6,000 for individuals 50 and older making a catch-up contribution. For 2010, the deduction begins to phase out at adjusted gross income (AGI) levels above $56,000 ($89,000 for joint filers) and is not available to taxpayers with AGI above $66,000 ($109,000).
- Student loan interest – The 2010 Tax Relief Act extended the above-the-line deduction for student loan interest up to $2,500 annually through 2012. For 2010, the deduction begins to phase out at AGI levels above $60,000 ($120,000 for joint filers) and is not available to taxpayers with AGI above $75,000 ($150,000).
- Tuition and fees – Extended through 2011 as part of the 2010 Tax Relief Act, tuition and fees of up to $4,000 can be deducted subject to reduction at AGI levels above $65,000 ($130,000 for joint filers); this deduction is not available if AGI exceeds $80,000 ($160,000 for joint filers). This must be coordinated with other educational exclusions and cannot be used if claiming the American Opportunity Tax Credit or Lifetime Learning Credit for the same student.
- Educator expenses – Also extended through 2011, eligible educators can deduct up to $250 per year for unreimbursed expenses incurred in connection with books, supplies (other than non-athletic supplies for courses in health or physical education), computer equipment and supplementary materials used in the classroom.The following deductions are available only to taxpayers using Form 1040:
- Expenses for reservists, performing artists, fee-basis government officials – Normally, expenses related to an occupation are taken as itemized deductions or are subtracted from income on a business return, but there are exceptions for these narrow classes. See Form 2106 for details.
- Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) – The deduction for HSAs is taken on line 25. As with IRA contributions, contributions to 2010 HSAs can be made until the April 18, 2011 tax return deadline. Taxpayers with an MSA must indicate the deduction by writing in “MSA” and the amount on the dotted line next to line 36.
- Moving expenses related to a new job – To qualify, the taxpayer’s new workplace must be at least 50 miles farther from their old home than was their previous workplace.
- Deductions for the self-employed – One-half of self-employment taxes are deductible. The self-employed also can deduct health insurance premiums and contributions to Keogh, SEP and SIMPLE retirement plans from their gross income.
- Early withdrawal penalties – Taxpayers who earned interest that they later forfeited because of a premature withdrawal penalty can use the loss to reduce their gross income.
- Alimony – Alimony is deductible, including back alimony, in the year when it is actually paid. Property settlements and child support are normally non-deductible.
Additionally, taxpayers may be able to write-in certain deductions. For example, jury participants who sign over their jury pay to an employer who then pays them their normal salary during jury service are allowed to deduct this. As with the deduction for MSAs, taxpayers would identify these deductions on the dotted line next to line 36 of Form 1040.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).