715 / How is adjusted gross income determined?

Adjusted gross income is determined by subtracting the following deductions from gross income:¹ (a) expenses directly incurred in carrying on a trade, business or profession (not as an employee – see Q 8051); (b) the deduction allowed for contributions made by a self-employed individual to a qualified pension, annuity, profit sharing plan, a simplified employee pension or SIMPLE IRA plan; (c) certain reimbursed expenses of an employee in connection with his employment, provided the reimbursement is included in gross income (if the employee accounts to his employer and reimbursement does not exceed expenses, reporting is not required); (d) deductions related to property held for the production of rents and royalties (within limits); (e) deductions for depreciation and depletion by a life tenant, an income beneficiary of property held in trust, or an heir, legatee or devisee of an estate; (f) deductions for losses from the sale or exchange of property (see Q 702); (g) the deduction allowed for amounts paid in cash by an eligible individual to a traditional individual retirement account (IRA), or individual retirement annuity; (h) the deduction allowed for amounts forfeited as penalties because of premature withdrawal of funds from time savings accounts (see Q 7920); (i) alimony payments made to the taxpayer’s spouse (prior to 2019, see Q 791); (j) certain reforestation expenses; (k) certain jury duty pay remitted to the taxpayer’s employer; (l) moving expenses permitted by IRC Section 217; (m) the deduction for Archer Medical Savings Accounts under IRC Section 220(i); (n) the deduction for interest on education loans; (o) the deduction for qualified tuition and related expenses; (p) the deduction for contributions (within limits) to Health Savings Accounts; (q) the deduction for attorneys’ fees involving discrimination suits; and (r) and the deduction for certain expenses of elementary and secondary school teachers up to $300 (made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH)). For tax years beginning after 2015, the $250 amount is adjusted annually for inflation ($300 in 2022 through 2025, $250 in 2016-2021).

Planning Point: IRS Revenue Procedure 2021-15 clarified that teachers and others who qualify for the educator expense deduction are entitled to deduct expenses paid for protective items to reduce the spread of COVID-19. Generally, teachers, instructors, counselors, and anyone else who is in a school for at least 900 hours during a school year are entitled to deduct up to $300 (in 2022 through 2025) in qualifying educational expenses each year. The deduction is often used by teachers who purchase items for the classroom that are not provided by the school. Unreimbursed expenses paid or incurred after March 12, 2020 for protective items now qualify for the deduction.

1. The new Section 199A deduction allowed to certain pass-through entities is not treated as a deduction here.