What it is:
How it works/Example:
For example, let's assume that John Doe had $100,000 of total income for 2012. He begins to fill out his IRS Form 1040. Because he paid alimony and had some moving expenses, he can deduct those items "off the top" and the deductions lower that income to, say, $80,000. That $80,000 is John Doe's adjusted gross income (AGI) -- the income on which the IRS assess income and determine John's eligibility for other . For example, because his is below $85,000, John is eligible to deduct more of his medical expenses and the interest on his student loan. Those deductions may not have been available to people with AGIs above, say, $95,000.
There are several kinds of above-the-line deductions, as this snapshot from a 2012 IRS Form 1040 shows.
Why it matters:
Above-the-line deductions reduce gross income determines one's eligibility for many other tax breaks and , they can "trigger" a host of other deductions for the , making them in a sense more valuable than "regular" ., making them very useful to . Because adjusted