What is Adjusted Gross Income (AGI)?


What is Adjusted Gross Income (AGI)?

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

How is adjusted gross income (AGI) calculated?

Adjusted gross income is your gross income – which includes salaries, dividends, alimony, capital gains, business income, retirement distributions, and other income – minus some payments you made in the past. during the year, such as student loan interest or traditional private contributions. retirement account or 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.

  • Self-employment taxes deductible.

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

  • Penalties on early withdrawals from savings.

  • Deductible IRA contributions.

  • Tuition and fees deductible.

  • Up to $ 600 in charitable donations if you take advantage of the standard deduction.

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

Where is the Adjusted Gross Income (AGI) on a tax return?

You can find your adjusted gross income directly on your IRS Form 1040. On your 2020 federal income tax return, your AGI is on line 11 of your Form 1040.

The importance of adjusted gross income (AGI)

Your AGI is often the starting point for calculate your tax bill. From there, you’ll make various adjustments and subtract your allowable deductions to find the amount you’ll pay tax on: that’s your taxable income. You will see the term “Adjusted Gross Income (AGI)” repeated throughout your tax forms.

Your state income tax return can also use your federal AGI as a starting point. If you declare your taxes online, your 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 the adjusted gross income before subtracting deductible student loan interest.

If you complete Form 1040 and itemize so that you can make certain deductions, you may need to calculate your MAGI. It can also be used as a benchmark to determine the level of elimination of certain credits and tax saving strategies, and sometimes the MAGI formula can depend on the type of tax benefit to which it applies.

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