Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is a crucial figure in tax calculations that represents your total income minus certain adjustments. It serves as the starting point for calculating your taxable income and determines eligibility for various tax benefits.

Components of AGI

AGI includes all income sources such as wages, salaries, tips, interest, dividends, business income, rental income, and retirement distributions, minus specific adjustments. If you're unsure about what income to report or do I owe the IRS anything, professional guidance can help clarify your obligations.

Common Adjustments to Income

• Traditional IRA contributions
• Student loan interest deduction
• Health Savings Account (HSA) contributions
• Self-employment tax deduction
• Alimony payments (for divorces before 2019)
• Educator expenses
• Moving expenses (military only)

Importance in Tax Planning

Your AGI determines eligibility for many tax benefits, including the Earned Income Tax Credit, Child Tax Credit, and various deductions and credits that phase out at higher income levels. Professional tax help can optimize your AGI through strategic planning and proper deduction identification.

Modified AGI (MAGI)

Some tax benefits use Modified AGI, which adds back certain deductions to your AGI. MAGI is used for:

• Roth IRA contribution limits
• Premium tax credit eligibility
• Medicare premium surcharges

Examples

• Gross income of $75,000 minus $5,000 in IRA contributions equals $70,000 AGI
• Business owner with $100,000 income minus $7,650 self-employment tax deduction

Tax Planning Tips

• Maximize above-the-line deductions to reduce AGI
• Lower AGI can increase eligibility for tax credits
• AGI from prior year is used for estimated tax calculations
• Consider timing of income and deductions to optimize AGI