Tax deductions, no itemizing required, on Schedule 1

I’ve always done my taxes. When the hubby and I married, I continued this annual task, now filing our joint return. The only change is that every tax season the hubby periodically peers over my shoulder as I work on our return and chants, “Deduct! Deduct! Deduct!”

Although taxes aren’t his thing, he’s right. Deductions can help lower taxes. And for most of our marriage, we’ve found it better to itemize deductions on Schedule A.

But even then, we’ve been able to use now and then what are known as above-the-line deductions. Back when these write-offs got that name, they were claimed on the old long Form 1040 (or a few also the 1040-A), just above the line where you calculated your adjusted gross income (AGI).

The total of these above-the-line deductions still goes on the newly-revised 2020 tax year Form 1040, highlighted in the form excerpt below. And the amount is still entered above the AGI line.

But since the Tax Cuts and Jobs Act (TCJA) of 2017, you arrive at that above-the-line total on Form 1040’s Schedule 1 before transferring it to your 1040.

Officially, as the title of Schedule 1 shown below notes, these are adjustments to income.

But they popularly are called deductions because they are deducted from your gross income, along with other items, to get to your AGI.

Regardless of what you call them, you should check out the possibilities. They are listed in Part II, shown below, for Schedule 1. Following the image is a brief look at what you can claim here to lower your income when you file your 2020 taxes this year.Click here to see full Form 1040 Schedule 1. Opens as PDF.

1. Educator expenses (line 10): Eligible educators (more on this in a minute) can deduct some qualified unreimbursed classroom expenses you paid out-of-pocket. Those expenses now cover certain COVID-19 costs, such as face masks, disposable gloves, disinfectant and physical barriers to ensure social distancing in the classroom. My earlier post has more on the qualifying personal protective equipment (PPE) for this deduction. The base amount is $250 for a single teacher. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses here. That $250/$500 amount also is adjusted annually for inflation. However, since there’s not been that much inflation recently, the amounts are unchanged for both the 2020 and, for tax year planning purposes, the 2021 tax years.

2. Certain business expenses (line 11): Don’t get too excited thinking this might make up for the itemized miscellaneous business expenses deduction that was eliminated by the TCJA. Instead, this Schedule 1 deduction is limited to folks in special job categories, specifically military reservists, performing artists and fee-basis government officials. Also, reserve military personnel can only use this for costs incurred when they travel more than 100 miles from home to perform services as a National Guard or other armed forces reserve member. If you drove to these duties in 2020, those miles can be counted at 57.5 cents a mile, plus what you paid for parking, fees and tolls. For 2021 planning purposes, it drops to 56 cents per mile. If you can take this deduction, you’ll need to fill out Form 2106.

3. Health savings account deduction (line 12): Here you can write off your contributions to one of these medical coverage plans, commonly referred to as HSAs. However, you’ll need more paperwork here, too: Form 8889.

4. Moving expenses for members of the Armed Forces (line 13): Folks who’ve claimed this tax break in the past probably have notice the added reference on this line’s description. It previously was shown only as moving expenses. The TCJA, however, changed that. Now relocation costs are limited to military personnel who are on active duty and who move pursuant to a military order related to a permanent change of station. These relocating U.S. Armed forces members also will have to fill out Form 3903 to detail their eligible costs, the total of which go here.

5. Self-employment tax (line 14): If you worked for yourself, either full-time or as a side job to bring in some extra spending money, you likely had to pay self-employment tax. Half of that amount can be subtracted here. You’ll have to include your Schedule SE, too.

6. Self-employed SEP, SIMPLE, and qualified plans (line 15): Staying in the be-your-own-boss vein, if you were able to contribute to a self-employment retirement plan, note that amount here.

7. Self-employed health insurance deduction (line 16): One more break for the independent worker. If you paid for your own medical policy, those premiums are fully deductible here. The insurance also can cover your child who was as old as 26 at the end of 2020, even if your son or daughter wasn’t your dependent. If you don’t use a tax pro or tax software, there’s a worksheet for the self-employed insurance deduction in the Form 1040 Schedule 1 instructions (page 90).

8. Penalty on early withdrawal of savings (line 17): If you had to cash in a CD or other savings account and paid a price for getting your money from your bank, you can write off that fee here. You should have received a Form 1099-INT or Form 1099-OID detailing the early-withdrawal penalty amount.

9. Alimony paid (line 18): The TCJA changed the tax treatment of alimony for ex-spouses who pay and receive this money. But its changes don’t affect divorces that were granted before the tax law took effect. Those distinctions affect the entries on this three-part line.

Under the TCJA, the deduction for alimony payments — the amount entered on line 18a — will remain in effect for folks with divorce agreements finalized by a court and/or a formal divorce decree issued before the end of 2018. That’s why the date you enter on line 18c is so important.

As for the former spouse getting alimony, if your status came after the TCJA’s Jan. 1, 2019, effective date, then you don’t owe tax on the spousal payments you get. If, however, it was before the law change, you still owe. That’s why line 18b wants your Social Security number, so the IRS can double check that you report it as income.

10. IRA deduction (line 19): If you have a traditional IRA, you might be able to deduct some or all of your contribution. This Schedule 1 deduction depends on many variables, such as income and workplace retirement plans, both for you and, if you’re married and file jointly, your spouse. Again, there’s a worksheet on pages 92 and 93 of the form’s instructions.

11. Student loan interest deduction (line 20): You can write off up to $2,500 in interest on your school debt here. Yes, there’s yet another worksheet (pages 93-94) to make sure you qualify — there are AGI determined earning limits — and figure how much you can enter on this line.

12. Tuition and fees (line 21): The 2020 tax year filing is the last on which you can claim this above-the-line education expenses deduction. It was eliminated as part of the coronavirus relief/federal spending/tax law enacted on Dec. 27, 2020.

For this final 2020 year, the deduction is worth up to $4,000 for single filers with modified adjusted gross income (MAGI) of $65,000 or less ($130,000 or less for married jointly filing taxpayers) or up to $2,000 for single filers with MAGI of $65,001 to $80,000 (between $130,001 and $160,000 for married joint filers).

Effective in 2021, the tuition and fees deduction is no more. However, the loss of this tax break should be offset by the expanded income limits for the Lifetime Learning Credit, which covers many of the same educational costs.

But wait, there’s more: OK, we’re done with Schedule 1 deductions, right? Wrong.

Line 22 of Schedule 1 says “Add lines 10 through 21.” What it doesn’t say is that you also should check the form’s instructions one more time … or keep reading here.

Those instructions on the bottom of page 94 and top of page 95 list 11 more above-the-line deduction options that can be claimed here. That’s why this post, which careful readers thought had a headline typo of 23 instead of 12 deductions, touts the larger number.

The additional income adjustments are:

1. Archer MSA deduction (see Form 8853). Identify as “MSA” on line 22.
2. Jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury. Identify as “Jury Pay.”
3. Deductible expenses related to income reported on line 8 from the rental of personal property engaged in for profit. Identify as “PPR.”
4. Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8. Identify as “USOC.”
5. Reforestation amortization and expenses (see IRS Publication 535). Identify as “RFST.”
6. Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see IRS Publication 525). Identify as “Sub-Pay TRA.”
7. Contributions to section 501(c)(18)(D) pension plans (see IRS Publication 525). Identify as “501(c)(18)(D).”
8. Contributions by certain chaplains to section 403(b) plans (see IRS Publication 517). Identify as “403(b).”
9. Attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from such actions (see IRS Publication 525). Identify as “UDC.”
10. Attorney fees and court costs paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations, up to the amount of the award includible in your gross income. Identify as “WBF.”
11. Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041), box 11, code A. See the Instructions for Schedule K-1 (Form 1041). Identify as “ED67(e).”

Yes, most of these additional 11 costs that you can claim are arcane and probably won’t apply to you. But these potential write-offs can add to your Schedule 1 adjustments/deductions total. You should give them at least a cursory look.

If you are one of the few filers who can claim them, take tax advantage when you file this year, even if they do require you do a bit more tax calculating and force you to fill out another form or two.

Deductions for all: Finally, if you’re thinking you can’t claim any of these above-the-line deductions/adjustments because you itemize, think again.

The beauty of these tax breaks is that they are available to any taxpayer who qualifies, regardless of whether you take the standard deduction or itemize.

And because they help determine your AGI, they could produce added benefits. A smaller AGI might qualify you for some additional income-determined tax breaks or, even better, tax credits that reduce your final tax bill dollar for dollar.