How to Figure Out Adjusted Gross Income (AGI)
The AGI calculation depends on the tax return form you use; some forms allow you to take more adjustments to income, than others.
Key Takeaways
- Your total income includes your wages, income from self-employment, taxable interest and dividends, alimony income, recognized capital gains, rental income, and other income payments.
- Your AGI is your total income minus certain eligible "adjustments to income," including qualified student loan interest payments and deductible contributions to your IRA accounts.
- Your AGI often determines your eligibility for many tax credits and deductions. Typically, the lower your AGI, the greater the deductions and credits you'll be eligible to receive.
Determining your AGI
When you file a tax return, you will see a line to determine your adjusted gross income, or AGI, before arriving at your taxable income number. The AGI calculation depends on the additional schedules and adjustments you use.
Reporting gross total income
Your AGI will never be more than the total income you report on your tax return, and in many cases, it will actually be less. Total income includes all of your income that is subject to income tax. This typically includes:
- your wages from work reported on a Form W-2
- income from self-employment, which is usually calculated on Schedule C
- taxable Social Security benefits, pensions and annuities, and IRA distributions
- taxable interest and dividends
- taxable alimony payments you receive from a former spouse
- capital gains
- rental income
- any other income you receive that isn’t specifically exempted from income tax
Deductions for AGI
Throughout your tax return form, there are many opportunities to take deductions, some of which reduce your total income to determine AGI, and some that are taken in later parts of the return to reduce your taxable income.
The deductions you take to calculate AGI are referred to as “adjustments to income.” These are specific deductions that the IRS allows you to use to reduce your total income to arrive at your AGI. You’ll sometimes hear these referred to as “above the line” deductions.
Some examples of adjustments to income include:
- qualified educator expense
- student loan interest and tuition payments
- deductible alimony payments
- contributions to your IRA accounts
Deducting your eligible adjustments from your total income results in your AGI.
TurboTax Tip:
Your modified adjusted gross income, or MAGI, is your AGI increased or decreased by certain amounts that are unique to specific deductions. Your MAGI is used to determine your eligibility for certain deductions.
Significance of AGI
The amount of your AGI directly influences your eligibility to claim many of the deductions and credits available on your tax return. If you itemize deductions and report medical expenses, for example, you have to reduce the total expense by 7.5% of your AGI.
- So, if you report $10,000 in medical expenses and an AGI of $100,000; you'll need to reduce your deduction by $7,500.
- But, if your AGI is $50,000, the reduction is only $3,750.
Generally speaking, the lower your AGI, the greater the deductions and credits you’ll be eligible to receive.
Modified Adjusted Gross Income (MAGI)
Throughout your return you’ll notice that the IRS also uses modified adjusted gross income, or MAGI. Your MAGI is your AGI increased or decreased by certain amounts that are unique to specific deductions.
For example, you'll need to calculate your MAGI if you want to deduct some of your student loan interest payments. For this deduction, your MAGI will be your AGI plus certain exclusions and deductions you’ve claimed for residency outside of the United States, such as the foreign earned income exclusion.
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