Income tax deductions are items that reduce your taxable income. But, there’s more to the story. It’s important to be aware that not all deductions are created equal.
For instance, some deductions can be taken “above the line” on your tax return. Above-the-line deductions are subtracted from your income before the adjusted gross income (AGI) is calculated for tax purposes. This would include items such as losses on a property sale, alimony payments and educational expenses.
However, the amount of above-the-line deductions you take, directly affects the amount and type of “below-the-line” deductions for which you’re eligible. Below-the-line deductions include any deduction reported on a line that comes after the AGI calculation on a return.