Video: Above and Below the Line Items

In this lesson, Nick Palazzolo, CPA, takes a deep dive into understanding "above the line" and "below the line" deductions and their significance on the tax return form. Nick begins by clarifying that "above the line" deductions are those that contribute to the calculation of Adjusted Gross Income (AGI), and "below the line" deductions come into play after AGI has been determined. He elaborates on how these deductions impact a taxpayer's liability and the importance of AGI in the overall tax landscape, with a variety of phase-outs and thresholds keyed to it. He reviews common deductions, such as educator expenses and self-employment tax, and explains their eligibility criteria. Moreover, Nick delineates between choosing to itemize deductions versus taking the standard deduction, and touches on the role of tax credits. With practical insights, he emphasizes the need to become well-acquainted with tax forms like the Form 1040, using it as a roadmap for navigating tax-related simulations (SIMs) and multiple-choice questions on the CPA exam.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right. I mentioned it a little bit, but now we're going to talk about above and below the line items. Super important. And this does refer to a physical line on the form. We'll see this as well. If an item is above the line or below the line, you should definitely know that if a question, not that a question would say this is above the line or below. I mean, it could, but essentially what that also means is it above or below AGI. So if something's above the line, it means that it's an item used to calculate AGI. If it's below the line, it's after calculating AGI. So it's an important figure here, AGI to calculate what your tax liability is going to end up being. A lot of items are based on AGI, a lot of phase outs, thresholds, all that good stuff. So calculating AGI is super important. And as such, knowing the items that are above the line, which means that they are used in calculating AGI will be important to understand. Above the line deductions reduce a taxpayer's AGI, while below the line deductions and tax credits reduce taxable income or tax liability. The terms refer to the physical placement of these items on the tax return form with above the line items listed before AGI and below the line items listed after AGI. Now the tax forms have changed year to year, and I'll show you where the line is, but there used to be even more of a clear cut line on these as such. There is where you get the name from. All right, we're going to dive through some examples of above the line items. These are just some examples. We'll have, we'll cover everything by the

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