Adjusted gross income (AGI): what it is, how to determine it

What is Adjusted Gross Income?

Adjusted gross income, or AGI, is your gross income minus certain adjustments. The IRS uses this number as the basis for calculating your taxable income. AGI may also determine the deductions and credits to which you may be entitled.

How is adjusted gross income calculated?

Adjusted gross income is your gross income – which includes wages, dividends, alimony, capital gains, business income, pension distributions and other income – less certain payments you made in during the year, such as interest on student loans or contributions to a traditional individual retirement account or a health savings account.

In general, the formula for calculating AGI is to determine your gross income. This includes income from:

  • Certain business expenses.

  • Deductible HSA contributions.

  • Moving expenses for the military.

  • Deductible taxes on self-employment.

  • Contributions to pension schemes or health insurance for the self-employed.

  • Penalties on early savings withdrawals.

  • Deductible IRA contributions.

  • Tuition fees and deductible expenses.

Tax software or your tax preparer will calculate your adjusted gross income as part of the process of preparing your tax return.

Where is AGI on a tax return?

You can find your adjusted gross income directly on your IRS Form 1040. On your federal tax return, your AGI is usually listed on line 11 of your Form 1040.

The importance of adjusted gross income

Your AGI is often the starting point for calculation of your tax account. From there, you will make various adjustments and subtract your allowable deductions to find the amount you will pay tax on: this is your taxable income. You will see the term “adjusted gross income (AGI)” repeated throughout your tax forms.

Your state tax return may also use your federal AGI as a starting point. If you file your taxes onlineyour software will calculate your AGI.

What is your Modified Adjusted Gross Income (MAGI)?

According to the IRS, for most taxpayers, modified adjusted gross income, or MAGI, is simply adjusted gross income before subtracting deductible student loan interest.

If you file Form 1040 and itemize in order to qualify for certain deductions, you may need to calculate your MAGI. It can also be used as a benchmark for determining the level of phasing out of certain tax saving credits and strategies, and sometimes the MAGI formula can depend on the type of tax benefit to which it applies.

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