Adjusted Gross Income

Adjusted Gross Income & How to File a 1040A

Video:

The speaker covers how to calculate your adjusted gross income and also how to fill out a 1040A tax form.

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.