TurboTax / Tax Calculators & Tips / All Tax Guides / IRS Tax Return / Video: Adjusted Gross Income (AGI) Explained

Video: Adjusted Gross Income (AGI) Explained

Updated for Tax Year 2016


OVERVIEW

It is important to understand how your adjusted gross income (AGI) affects your taxable income. Your AGI determines whether you can claim certain deductions and credits. To have AGI explained further, check out this video.


Hello, I’m Lisa Skelly from TurboTax with some interesting information about the importance of your adjusted gross income.

You are probably more interested in what your taxable income is than your adjusted gross income, or AGI as it’s sometimes called. But if you understand what your AGI is and how it affects your taxable income, you may find yourself paying a little more attention to it.

The AGI calculation is rather simple. By subtracting certain deductions that the IRS refers to as “adjustments to income” from your total income, you arrive at your AGI. Adjustments to income are specific types of deductions listed on the first page of your 1040. If you use the 1040A instead, the IRS makes only a small number of them available—and none at all if you file on the 1040EZ.

The IRS uses your AGI as a threshold amount to determine whether you can claim certain deductions and credits, and the amounts you’re eligible for. And for some credits and deductions, the IRS uses a variation of your AGI known as modified adjusted gross income or MAGI. For example, the student loan interest deduction uses two MAGI thresholds. If your MAGI exceeds the first threshold amount, you are still eligible for a deduction, but it will be smaller than the maximum. However, if you report an MAGI that is at least equal to the second threshold, the student loan interest deduction is no longer available to you at all.

The MAGI calculation changes depending on the deduction, but it’s always larger than your AGI. For example, suppose you take a $2,000 student loan interest deduction and your AGI is $50,000. Calculating your MAGI requires you to increase your AGI by $2,000—to $52,000. Other items reported on your return may also affect your MAGI, but the IRS will note this in the instructions to your return. Your AGI also has a direct impact on the amount of itemized deductions you can report. Some of the expenses you claim on Schedule A, such as medical expenses, must be reduced by a percentage of your AGI. And lastly, the AGI you report on your federal return can affect your state tax return as well. This is because many states use your federal AGI as the starting point for calculating your state taxable income and as a threshold for assessing your eligibility to claim deductions.

Remember, when you file with TurboTax, you don’t need to know a thing about taxes. We’ll ask you simple questions and do all the calculations to help you get your biggest tax refund.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/1040A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax Self-Employed ExpenseFinder: ExpenseFinder™ is available year round as a feature of QuickBooks Self-Employed (available with TurboTax Self-Employed, see the “QuickBooks Self-Employed Offer with TurboTax Self-Employed” details below.) ExpenseFinder™ expected late January (late February for mobile app). ExpenseFinder™ not available from within TurboTax Self-Employed for people with certain types of expenses and tax situations including paying contractors or employees, home office or vehicle actuals, inventory, self employed health insurance or retirement, asset depreciation, sale of property or vehicles, and farm income. Availability of historical transactions for import may vary by financial institution. Not available for all financial institutions or all credit cards.
  • QuickBooks Self-Employed Offer: File your 2016 TurboTax Self-Employed return by 4/18/17 and receive your complimentary subscription to QuickBooks Self-Employed until 4/30/18. Activation required. Log in to QuickBooks Self-Employed by 7/15/17 via mobile app or at https://selfemployed.intuit.com/turbotax; e-mail address used for activation and log-in. Offer valid only for new QuickBooks Self-Employed customers. See QuickBooks.com for price comparison.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not file with TurboTax Self-Employed by 4/18/18, you will have the option of renewing your QuickBooks Self-Employed subscription by 4/30/18 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself: In order to pay for the price of TurboTax Self-Employed, you will need at least $600 in deductible business expenses. This calculation is based on the self-employment tax income rate for tax year 2016.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or SmartLook); not included with Federal Free Edition. Feature availability varies by device. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.