Adjusted Gross Income (AGI) Definition & List of Deductions

What is Adjusted Gross Income (AGI)?

The term adjusted gross income refers to an amount of income used to determine a tax payers total income tax liability.  The "adjustments" to gross income are created by allowable deductions that are part of the IRS tax code.

Many limits on deductions and credits are based on the adjusted gross income.  Additionally, this number can be used to determine eligibility for student loans. 

Taxpayers can arrive at gross income by adding up the following components:

  • Wages
  • Interest & Dividend Income
  • Alimony received
  • Business Income from Partnerships
  • Taxable Pensions
  • Various Social Security benefits
  • Rental income
  • Capital Gains
  • Royalty Income
  • Unemployment compensation
  • Farm Income

The following list of deductions lower gross income and allow you to determine your adjusted gross income:

  • Business Expenses
  • Expenses related to rents & royalties
  • Certain losses from the sale/exchange of property
  • Education and student loan interest expenses
  • Alimony Payments
  • Certain contributions to savings plans such as Keogh, and Traditional IRA
  • Medical savings account contributions
  • 50% of self employment tax
  • Health Insurance deduction for the self employed

You may find your AGI on your 1040; it is the last number on page 1. 

Modified Adjusted Gross Income (MAGI)

The modified adjusted gross income is a slight modification to the adjusted gross income.  To arrive at the MAGI, take your AGI and add back the following items:

  • Employer Paid Adoption Expenses
  • Interest Income from Series EE bonds that was excluded from AGI due to higher qualified education expenses
  • Deductions claimed for contribution to traditional IRA
  • Deduction you claimed for Student loan interest or tuition related expenses
  • Deductions claimed for foreign housing or earned income
  • Claimed domestic roduction activities.

The MAGI is primarily used for determining the amount of allowable contribution to various retirmement plans, namely the IRA's.

Tim Ord
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