Key Questions for Determining Your Adjusted Gross Income

No one enjoys paying taxes, however the fact that you’re entire salary isn’t taxed by the federal government should make it a little bit easier to swallow. During tax time, you’re required to report your entire income, but the IRS deducts certain amounts, like education costs and retirement plan contributions, before determined the amount of income which will be taxed. This new figure is known as your Adjusted Gross Income (AGI).

Using your standard tax return form, the 1040, you can make all the necessary deductions to lower your tax liability. On the form, lines 23 through 35 are subtracted from your income, and the remainder of your income is what will be taxed. These deductions are known as “above the Line deductions”, as they are just underneath your adjusted gross income. Opposed to other “below the line deductions”, above the line deductions apply to everyone who files a tax return, not just a select few.


The IRS, as well as certain states use above the line deductions to determine your tax rate. Above the line deductions can be claimed for student loan interest, retirement savings, and health savings or flexible spending accounts. See below for questions relating to above the line deductions, and which line on the Form 1040 corresponds to each deduction.

Do you teach K-12th grade?

If you work for at least 900 hours during the school year as an educator, principal or counselor of grades K through 12, you are able to deduct up to $250 for books and supplies that you paid for out of your pocket. If your spouse is also an educator, and you file together, you can deduct up to $500 in unreimbursed expenses.

Are you a member of the National Guard, a performing artists, or a fee-based government official?

The IRS considers a fee-based government official as anyone who performs services for the state or local government and receives compensation, either partially or fully, on a fee schedule for the work completed. See Line 24 for more information.

Have you relocated due to work in the previous year?

You can deduct costs associated with relocation due to work on line 26. Your new residence must be in excess of 50 miles of your old home. This new distance is calculated by the IRS by subtracting the mileage from your old home to your old job from the miles between your new job and old home.

Are you self-employed?

Complete a Schedule C to get an accurate view of what your self-employment income and tax assessment before filling out line 27.

Do you have retirement savings outside of an IRA, such as SEP, SIMPLE?

Certain rules apply for those who use retirement savings other than an IRA as far as what can be deducted. Check with your financial advisor or the IRS to determine what amounts can be deducted on line 28.

Do you have health care from self-employment?

Line 29 is available for self-employed business owners who get their health care through their business. It’s necessary that the health care plan be established under the business. You can deduct the total amount spent on premiums throughout the tax year.

Did you make withdrawals on a bond, CD, or retirement account?

Fill out line 30 if you owe a penalty for an early withdrawal of funds from an account, bond, CD, etc.

Did you make alimony payments?

On your tax return, you should fill out line 31a and 31b if you paid alimony to a former spouse. You’ll need to document the amount you paid and the social security number of the recipient. Child support is not included.

Did you contribute to a traditional IRA?

Line 32 should be filled out if you made contributions to a traditional IRA throughout the tax year and have any form of earned income, including wages, tips, commissions, salaries, etc. Roth IRA contributions are not eligible. Check Box 13 on your W-2 to determine if your employer sponsors your retirement plan, as there are limitations on how much of your contribution is deductible.

Do you pay a student loan?

Check line 33 to determine how much paid interest (up to $2,500) can be deducted. You will receive a Form 1098-E from your loan holder stating the amount you paid in interest. You can deduct student loan interest if you meet the following qualifications:

  • You don’t file as “married, filing separately”
  • Your AGI is less than $80,000 single, $160,000 married
  • You aren’t claimed as a dependent on anyone else’s return.