8 Things to Know About Divorce and Taxes
If you’re filing for divorce, or find yourself recently divorced, it’s imperative that you understand how your changing marital status...
If you have ever prepared your own taxes, you probably noticed that many of the deductions and credits reported on your tax return are subject to Adjusted Gross Income (AGI) limitations. AGI is basically your total gross income less specific deductions. The AGI calculation is done on the first page of your tax return. The calculation is essentially as follows:
Total income subject to income tax:
Earnings from job or self-employment
Dividends and interest
State or local Tax refunds (if a deduction was taken in a past year)
Capital Gains (Losses)
IRA distributions Pensions and annuities
Income from investments and businesses
Social security benefits
Less specific deductions you are eligible for:
Certain business expenses
Self employment expenses
Penalty for early withdrawal of savings
Student loan interest deduction
Tuition and fees
Domestic production activities deduction
The specific adjustments can change year over year. The 1040 is the only form that allows you to deduct every possible adjustment. Using form 1040A significantly reduces the number of available adjustments you can take. If you're filing on the 1040EZ, your AGI is the same as your total income, since the form doesn’t allow you to deduct any adjustments to income.
In some cases, adjustments to income are subject to AGI limitations despite the fact that those deductions are necessary to calculate your AGI. If you’re eligible to deduct some of these, your modified adjusted gross income (MAGI) determines whether you qualify.
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