Not all tax deductions are created equal. A few are applied before you calculate your adjusted gross income (AGI) for the year. And because your AGI determines which tax bracket you're in and which tax breaks you qualify for, these deductions can make a huge difference in your final tax bill by lowering your AGI.
The following so-called "for AGI" deductions are particularly valuable because they're relatively easy to qualify for.
The IRA deduction
This one may be the king of tax deductions. To qualify, you simply contribute to a traditional IRA, a special type of investment account that's designed for retirement savings and offers tremendous tax savings. Most savers qualify to deduct their IRA contributions from their taxable income. You're only ineligible if you or your spouse has access to a workplace retirement account and you exceed certain income limits.
What's more, this is just about the only tax break that you can qualify for after the year ends: You can make IRA contributions that apply to the tax year in question right up to the day the return is due (typically in mid-April of the following year).
And these contributions have the added benefit of growing tax-free over time until you hit retirement age and finally start tapping into them. Unlike the investments in a standard brokerage account, investments held in an IRA are exempt from capital gains taxes (the tax you're charged for selling an asset at a profit) and taxes on any dividends or interest generated inside the account. So if you qualify to take the IRA deduction, do your best to max it out by contributing up to the annual limit.
The health savings account
If you qualify to contribute to a health savings account (HSA), not only can you build up a nice sum to pay for any medical catastrophes, but you can also get a substantial tax break from the deal. You can deduct all your HSA contributions for the year up to the annual contribution limit, which for 2018 is $3,450 for self-only accounts and $6,900 for family coverage accounts. And if you're 55 or older, you can make an additional catch-up contribution of $1,000 per year. Normally you must use the money in your HSA for qualified medical expenses; otherwise you'll get slapped with a tax penalty. However, once you hit age 65, you can use the funds in the account for anything at all, though you'll pay income tax on withdrawals that go toward non-medical expenses.
Just be sure that you have an HSA qualified health insurance policy in place before contributing, or you could be hit with a penalty instead of enjoying a tax break.
Student loan interest
Good news: This deduction survived the recently passed tax reform despite threats of repeal from some legislators. The student loan interest deduction covers as much as $2,500 of the interest on your student loans per year. Given how much debt the average college graduate ends up carrying, this tax break can be a fabulous deal for many taxpayers. You can even claim this deduction if you're paying student loans for a spouse or dependent child.
Note that in order to deduct the interest for a student loan, you must have spent the loan money on qualified higher education expenses (tuition, fees, books and the like). There are also income limits that make high earners ineligible.
Sadly, unlike the student loan interest deduction, the moving expense deduction was repealed by the Tax Cuts and Jobs Act. That means 2017 is the last tax year for which you can claim this deduction.
To qualify, you must have moved for work-related reasons in 2017, and your new workplace has to be at least 50 miles farther from your old home than your previous job was. If that's the case, then you definitely want to grab this tax break.
These four deductions aren't the only for-AGI tax breaks; to see the other options you have to reduce your AGI, consult the year's Form 1040 and check out the lines in the section labeled "Adjusted Gross Income" (for 2017, lines 23 through 37). If you see any deductions that you might qualify for, read the Form 1040 instructions to see if you can indeed claim them. If they can drop you into a lower bracket or make you eligible for further tax breaks, you'll be amply compensated for your efforts.
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