A better way to handle the busy tax season

Watch now

1 October 2018 / Individuals

What is Adjusted Gross Income (AGI)?

1 October 2018 > Individuals

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:

  1. Earnings from job or self-employment

  2. Dividends and interest

  3. State or local Tax refunds (if a deduction was taken in a past year)

  4. Alimony received

  5. Capital Gains (Losses)

  6. IRA distributions Pensions and annuities

  7. Income from investments and businesses

  8. Unemployment compensation

  9. Social security benefits

  10. Other Income

Less specific deductions you are eligible for:

  1. Educator expenses

  2. Certain business expenses

  3. HSA deduction

  4. Moving expenses

  5. Self employment expenses

  6. Penalty for early withdrawal of savings

  7. Alimony paid

  8. IRA deduction

  9. Student loan interest deduction

  10. Tuition and fees

  11. 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.

Phillip Ingelmo

Read more posts by this author