Adjustments to Income

Americans can take avail themselves of various deductions directly on their tax return. These don't need to be itemized on a separate schedule: they appear directly on the tax return. These deductions are called adjustments to income since they "adjust" or reduce your income to arrive at your adjusted gross income. They are also called "above the line" deductions (meaning they appear above the line on the tax form for adjusted gross income).

Here's a list of adjustments to income:

• Classroom expenses for teachers and educators
• Qualified performing artists and other professions
• Traditional IRA deduction
• Student loan interest deduction
• Tuition and fees deduction
• Health savings account deduction
• Moving expenses
• Self-employment tax deduction
• Self-employment health insurance
• SEP-IRA, SIMPLE IRA and 401(k) deductions for the self-employed
• Early withdrawal penalty
• Alimony paid
• Domestic Production Activities Deduction for certain types of businesses.

What's Strategic about Adjustments to Income?

I much prefer these various adjustments to income over itemized deductions. For one thing, they directly reduce a person's adjusted gross income. You can also take adjustments to income in addition to your standard deduction or itemized deductions. And most importantly, these deductions are not added back when calculating the alternative minimum tax.