Deductions for AGI and Deductions from AGI

 

 

 

There are two classes of deductions. Deductions for AGI and Deductions from AGI. Discuss the differences between these two classifications and the types of deductions in each classification. Explain which deductions are more advantageous for your tax return.

 

Sample Solution

The two classifications of deductions are deductions for Adjusted Gross Income (AGI) and deductions from AGI. Deductions for AGI are those that reduce a taxpayer’s taxable income by adjusting their AGI, such as student loan interest, alimony payments, and contributions to health savings accounts (HSAs). Deductions from AGI involve reducing the total amount of taxes due on one’s return by deducting certain expenses or items from the gross income figure before arriving at an adjusted gross income number. Examples include itemized deductions like medical expenses, charitable contributions, state and local taxes paid, mortgage interest paid, work-related education expenses and unreimbursed employee business expenses (Gill et al., 2019).

It is important to note that Itemized deductions can be taken only if they exceed the standard deduction amount allowed by the IRS whereas deductions for AGI apply regardless of whether you take the standard deduction or itemize your tax return (Gill et al., 2019). Additionally, taxpayers must choose between taking their allowable itemized deductions or their deduction for AGI; they cannot do both in one year.

 

Vanity Fair

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