The AGI calculation depends on the tax return form you use; some forms allow you to take more adjustments to income, than others.
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When you file a tax return, you will see a line to determine your adjusted gross income, or AGI, before arriving at your taxable income number. The AGI calculation depends on the additional schedules and adjustments you use.
Your AGI will never be more than the total income you report on your tax return, and in many cases, it will actually be less. Total income includes all of your income that is subject to income tax. This typically includes:
Throughout your tax return form, there are many opportunities to take deductions, some of which reduce your total income to determine AGI, and some that are taken in later parts of the return to reduce your taxable income.
The deductions you take to calculate AGI are referred to as “adjustments to income.” These are specific deductions that the IRS allows you to use to reduce your total income to arrive at your AGI. You’ll sometimes hear these referred to as “above the line” deductions.
Some examples of adjustments to income include:
Deducting your eligible adjustments from your total income results in your AGI.
Your modified adjusted gross income, or MAGI, is your AGI increased or decreased by certain amounts that are unique to specific deductions. Your MAGI is used to determine your eligibility for certain deductions.
The amount of your AGI directly influences your eligibility to claim many of the deductions and credits available on your tax return. If you itemize deductions and report medical expenses, for example, you have to reduce the total expense by 7.5% of your AGI.
Generally speaking, the lower your AGI, the greater the deductions and credits you’ll be eligible to receive.
Throughout your return you’ll notice that the IRS also uses modified adjusted gross income, or MAGI. Your MAGI is your AGI increased or decreased by certain amounts that are unique to specific deductions.
For example, you'll need to calculate your MAGI if you want to deduct some of your student loan interest payments. For this deduction, your MAGI will be your AGI plus certain exclusions and deductions you’ve claimed for residency outside of the United States, such as the foreign earned income exclusion.
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Start for free 100% free filing.The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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