What is Adjusted Gross Income (AGI)?

What is Adjusted Gross Income (AGI)?


Adjusted gross income is part of the IRS (Internal Revenue Service) definition of self-employment income. It is used when two income sources are combined; so if you make more money from one source than from the other, it’s considered AGI. AGI is used to determine eligibility for certain benefits, such as 401(k) matching for 401(k) Plan participants. It is also a standard measure of income and can be affected by inflation or increases in cost of living.

Adjusted Gross Income (AGI) can directly affect the deductions and credits for which you are eligible, which may end up reducing the amount of taxable income you report on your tax return.

A brief description of the AGI

Adjusted Gross Income(AGI) is a way of determining your net income as compared to your gross income. Adjusted gross income (AGI) does not include all the deductions you may have for other business expenses. If you want to calculate Gross Income, which no one really likes to do, you would use your taxes return, which you would need to calculate your own personal income. However, using adjusted gross income allows you to compare your personal income against the net income you lead to.

When preparing your tax return, you probably pay more attention to your taxable income than your Adjusted Gross Income (AGI). However, your Adjusted Gross Income is also noteworthy, as it can directly affect the deductions and credits you’re eligible for, which may end up reducing the amount of taxable income you report on your return.

AGI Calculation

Calculating adjusted gross income is relatively straightforward.

It is equal to the total income you report and is subject to income tax, such as income from work, self-employment income, and interest from a bank account, minus any specific deductions, or “adjustments,” that you are eligible for. to drink.

Your Adjusted Gross Income is calculate before taking the itemize or standard deduction, which you report in the later sections of the return.

Income adjustments

Adjustments to income are specific deductions that directly reduce your total income to arrive at your Adjusted Gross Income. The types of adjustments that can be deduct are subject to change each year, but some of them consistently show up on tax returns from year to year. Some of these settings include:

  • Half of the taxes you pay for self-employment
  • The payment of alimony made to a former spouse (for agreements prior to 2019)
  • Contributions to certain retirement accounts (for example, a traditional IRA)

Impact of deductions

Many of the deductions that taxpayers commonly take each year are subject to AGI limitations. If you itemize deductions, for example, you must reduce your medical and dental expenses by 7.5% of your Adjusted Gross Income. This means that you can only deduct the amount that exceeds 7.5% of your Adjusted Gross Income. Therefore, the lower your Adjusted Gross Income, the more medical and dental expenses you can deduct.

Even some of your adjustments to income are subject to AGI limitations. Even though those deductions are necessary to calculate your own Adjusted Gross Income. If you are eligible to deduct some of your tuition payments, your Modified Adjusted Gross Income (MAGI) determines if you qualify.

Other implications of the AGI

If you live in a state that requires you to file annual income tax returns, your Adjusted Gross Income may also affect your state’s taxable income. This is because many states use your federal AGI as the starting point for calculating state taxable income. And if you claim a tax credit, like the Lifetime Learning Credit, for your school expenses, the IRS requires that your MAGI be below a certain amount in order to claim the credit.

When you use TurboTax to prepare your taxes, we’ll ask you simple questions about your income and guide you step-by-step through adjustments to disposable income and other deductions. We handle all of the AGI and MAGI calculations and determine exactly how this affects your other deductions.

Do your taxes your way with TurboTax. Do them yourself, with the help of an expert, or have an expert do them for you from start to finish. Your taxes will be well do.


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  • sig 320 February 16, 2024

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