Common convention refers to all factors that lower taxable income as "deductions." However, paid tax preparer study teaches the existence of many expenses that adjust income regardless of whether taxpayers have itemized deductions.
The distinction is important because these adjustments - often called "above the line deductions" in tax preparation school - are available in addition to taking a standard deduction. Also, adjustments reduce adjusted gross income. Therefore, in addition to creating lower tax, income adjustments can help someone qualify for the itemized deductions that are limited by AGI.
Learning about adjustments to income begins with registered tax return preparer exam preparation. Especially common in today's economy is deduction of moving expenses incurred to take a new job. This income adjustment is allowed for costs to transport household property and any packing materials. The deduction also includes a standard mileage rate for driving a personal vehicle to the new location as well as lodging during the trip. A tax return preparer course reveals the qualification for this income adjustment. The move must occur because the new job is at least 50 miles farther from a former home than the old job was from the former home. An RTRP knows that the location of the new home is not relevant to the calculation.
An RTRP training course covers some other income adjustments. One is a deduction by armed forces reservists of expenses to travel more than 100 miles from home. These individuals are not subject to the limitations imposed on deduction of employee expenses that are itemized. Another profession benefiting from an income adjustment is teachers and other individuals who work at least 900 hours per year at a school. These employees can deduct up to $250 annually of their out-of-pocket costs for classroom materials.
Another adjustment to income is the amount of student loan interest paid during the year up to $2,500. In fact, taxpayers are entitled to this deduction even if their parents are paying the student loans. That's important because the deduction is eliminated for taxpayers with higher incomes. However, the adjustment for student loan interest is not available for anyone who is claimed as a dependent on another person's tax return or is married filing separately.
Parents who pay student loans for their children cannot take the income adjustment because only the students are legally obligated for payment of the interest. Fortunately, the IRS considers student loan payments made by parents as gifts to their children. The amount is too low for gift tax to apply. But, the consequence of receiving a gift and then having it pay a student loan means the interest is paid with the student's money. Therefore, the procedure in a registered tax return preparer job is to adjust the income on the tax return of the student.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.