Adjusted Gross Income (AGI)

Adjusted Gross income is a term related to tax in United States which is used in calculating an individual’s income tax deductions. AGI is calculated by taking an individual’s gross income and subtracting the income tax code’s enumerated deductions, which is an important benchmark that determines certain other benefits. Adjusted gross income is total gross income minus specific terms laid out in the tax code. Gross income is sales price of goods or property, less cost of the property sold, plus other income. It includes wages, interest dividends, business income, rental income and all other types of income.

Adjusted gross income is gross income less deductions from a business or rental activity and 21 other specific terms. Adjusted gross income also known as “net income” is a measure of income used to determine the extent of taxable income. An individual’s AGI figure on the federal tax return and it is used to establish eligibility for financial benefits such as IRA contribution deduction limits and social security benefits.

Adjusted Gross Income is calculated as your gross income from taxable sources minus allowable deductions, such as reimbursed business expenses, moving expenses, and alimony and deductible retirement plan contributions. Certain deductions, including those of lower rate taxes and itemized deductions are based on levels of AGI.

Modified AGI 

Certain modified versions of AGI form the base for tax collection. The definition varies according to the purpose for which it is used. These modified versions may add certain items to AGI that were excluded in computing gross income. Common additions in include tax exempt interest and the excluded portion of Social security benefits.

Calculating Modified Adjusted Gross Income (MAGI)

Modified Adjusted Gross Income is measure used by the IRS to determine if a taxpayer is eligible to use certain deductions, credits or retirement plans.

Modified Adjusted Gross Income (MAGI) is calculated by adding back certain items to your Adjusted Gross Income. Your Adjusted Gross Income can be found on line 38 of your form 1040 or line 22 of form 1040A or line 36 of your form 1040 NR. The following items must be added to your Adjusted Gross Income to calculate you r Modified Adjusted Gross Income (MAGI):

Traditional IRA contributions that were deducted, student’s loan interest amounts deducted tuition and fees deducted, domestic plan activities deducted, foreign income or housing costs excluded on from2555, foreign housing deduction taken on form 2555. Savings bond excluded on from 8815, adoption benefits from an employer excluded on form 8839.

Questions:

• What is Adjusted Gross Income?
• What is Modified Adjusted Gross Income (MAGI)?