Senior Wealth Advisor John Gjertsen, CFA, CFP®, EA explains why tax deductions on the front of the 1040 are often more helpful than those on page 2:
Now that 2016 tax season has wrapped up for all but the extenders, savvy taxpayers should be able to review their Form 1040 and visualize what changes 2017 could bring. Regardless of whether “major tax reform” is passed later this year, there is unlikely to be a revolutionary simplification in the way income taxes are calculated, so the basic structure of the return will be the same. Exclusions and deductions for adjusted gross income, or AGI—also called “above the line” deductions—reduce income on the first page of the return, while exemptions and deductions from AGI—also called “below the line” deductions—reduce income further before taxes are calculated. Although the deductions for AGI and deductions from AGI both have the same effect on taxable income, there are many reasons why the former are often better for the taxpayer than the latter.