If you are looking to calculate your adjusted gross income (AGI), there are a few things you will need to take into account. First, you will need to gather all of your taxable income sources, which may include wages, salaries, tips, interest, dividends, and alimony, among others. Next, you will need to subtract any adjustments to income, such as IRA deductions, student loan interest, and alimony payments. The resulting number is your AGI.
- Start with your gross income. Income is on lines 7-22 of Form 1040.
- Add these together to arrive at your total earned income.
- Subtract your adjustments from your total income (also called “above-the-line deductions”)
- You have your AGI.
Other things to consider when calculating AGI
Taxpayers can deduct charitable donations up to 60% of their AGI and any medical expenses that exceed 10% of their AGI Some adjustments are a fixed amount, while others—like the dependent and adoption tax credits—are a percentage of each taxpayer’s AGI. Your ability to correctly apply qualifying tax credits and deductions, which can lower your taxable income, is aided by knowing your AGI.
Some tax credits and deductions, like the child tax credit and the traditional individual retirement account contribution deduction, are based on your modified adjusted gross income (MAGI), while most are based on your adjusted gross income (AGI). You must subtract certain adjustments from your AGI, such as retirement deductions, student loan interest, foreign earned income, and savings bond interest, to arrive at your MAGI.
How to calculate AGI
1. Determine your gross income
2. Identify your qualified income adjustments
Your W2 will include information about some qualified income adjustments, like retirement contributions. To submit any additional adjustments, you must ascertain whether you have them and collect the necessary paperwork. Educator costs up to $250, student loan interest, college tuition, alimony payments, health savings account contributions, and self-employed health insurance deductions are all acceptable adjustments to your income. These income adjustments have restrictions, minimum requirements and expense limits. When claiming an income adjustment, investigate each adjustment to make sure you meet the requirements and won’t go over the allowed amount for expenses. Add up all of the qualifying income adjustments you’ve identified and documented to get the total value of the adjustments.
3. Subtract your total income adjustments from your gross income
Put your numbers into the formula below to determine your adjusted gross income after determining your total gross income and total qualified income adjustments:
Total qualified income adjustments minus Gross income from all sources equals Adjusted Gross Income.
Examples for how to calculate AGI
Here are two examples for calculating AGI:
Example 1: Sally
Sally recently started a second job selling handmade jewelry while working as a registered nurse at a nearby hospital. Her hospital-issued W2 showed a gross income of $60,000 and a $1,800 annual bonus. Additionally, she made $5,000 from the sale of her original jewelry. Throughout the year, Sally contributed 5% of her income from the hospital to an IRA, and paid $1,000 in interest on her student loans
Sallys combined gross income is $66,800. She now needs to determine her qualified income adjustments. She can claim the entire $1,000 student loan interest and the 5% of $60,000 that she contributed to her IRA, which is $3,000 Sally is qualified to make four thousand dollars worth of income adjustments. Her adjusted gross income is $62,800 after she deducts $4,000 from $66,800.
($60,000 $1,800 $5,000) – ($1,000 $3,000) = AGI$66,800 – $4,000 = AGI$62,800 = AGI ($1,800 $3,000)
Example 2: Mark
The school district paid Mark’s salary of $45,000 as a teacher. He also contributed 3% of his income into a 401(k), $1,200 into a health savings account and spent $385 to provide classroom supplies not budgeted by the school district During the financial year, Mark paid $750 in interest on his student loans.
His gross income is $45,000. Mark will add his $1,350 401(k) contribution, $1,200 from his health savings account, the maximum $250 of his $385 educator expenses, and $750 from his student loan interest to determine his qualified income adjustments. Mark has calculated that his adjusted gross income (AGI) is $41,450 after deducting his adjustment from $45,000 and adding his qualified expenses.
AGI is ($45,000) – ($1,350 $1,200 $250 $750) AGI is ($45,000) – ($3,550 $31,450) AGI
Income Tax: Calculating Adjusted Gross Income (AGI) | Accounting | Chegg Tutors
FAQ
How is adjusted gross income calculated?
Gross income less adjustments to income is known as adjusted gross income (AGI). Your wages, dividends, capital gains, business income, retirement distributions, and other sources of income are all included in your gross income.
How do I calculate my AGI from my W2?
Adjusted Gross Income (AGI) is the sum of gross income and adjustments to income. Add up all the components of your gross income, such as wages, dividends, capital gains, business income, retirement distributions, and other sources of income, in order to perform this calculation.
How is AGI calculated standard deduction?
To start, total income from all taxable sources, like self-employment or salary, should be determined. Next, determine any income adjustments, such as IRA contributions or self-employment tax deductions. Subtract these from total income and claim the standard deduction.
