Finding an adjusted gross income (AGI) is easy. You count it in front of your 1040, then write it at the bottom of the page. However, finding your modified AGI (MAGI) is difficult because it doesn’t get its own space on your tax return. Instead, you need to sit down and adjust your gross income to get the MAGI figures you need.
Adjustable gross income (AGI), you start with your gross income. This includes your salary as an employee, personal income, benefits, dividends, and taxable benefits – all before you deduct any deductions or exemptions. To adjust gross income, you subtract the amount identified on your 1040. Some deductions are for money placed in a tax-exempt account, such as an IRA or health savings account. Other deductions include your student loan interest and a portion of any personal taxes you pay.
High-modified AGIs affect contributions to traditional and Roth IRAs. With traditional IRAs, MAGI limits how much you can contribute tax-free; with Roth, it limits how much you can contribute at all. You modify the AGI by adding some of your adjustments such as any deductions you claim for IRA contributions or student loan benefits. If you exclude earned income from your gross income, add it as well. Until 2012, you cannot contribute to Roth if you file a joint return and your MAGI is $ 183,000 or more.
MAGI Social Security
The Social Security Administration also uses your MAGI, but it calculates it differently. You can compile this version with information about your 1040: Take your AGI and add any tax exemption interest you wrote on line 8b. If you receive your Social Security and MAGI benefits high enough, your benefits will be taxable. If you receive Medicare, you will have to pay a higher premium when you make a higher MAGI.
When you modify your AGI, you are not adding the tax-exempt contributions you make to a workplace retirement plan such as a 401 (k). If your MAGI is high enough to affect Roth contributions or a traditional IRA, your workplace plan can help. Since 401 (k) contributions are not included in taxable income, putting more money into the plan can reduce the modified AGI so that there is no IRA limit. Until 2012, you can put up to $ 17,000 into your 401 (k).
Calculating Adjusted Gross Income
For most Americans, the AGI is a fairly straightforward figure. Ordinary deductions, such as education expenses or contributions to a qualifying retirement account, are easily conceivable and deducted from total gross income, which is described on Form 1040.
Form 1040 is the only IRS form that allows for every possible tax deduction. Other versions of this page, including Form 1040A and Form 1040EZ, have reduced the possibility of adjustment. All of these forms allow for standard deductions.
Line 37 only houses your AGI on Form 1040. It is different for each IRS form; For example, Form 1040A lists the AGI on line 21.
State Tax Implications
Certain states require their residents to file annual income tax returns with the state tax authorities. This means you also list the AGI for this purpose, although it may be listed in other parts of the document. You can simply calculate the AGI for federal taxes and transfer that number to any state filing.
Importance of Adjusted Gross Income
Your AGI determines the tax benefits you are eligible for, how the IRS processes the forms and changes to the tax registrar you enter below. Before you fill out Form 1040, take the time to maximize your deductions and reduce your amount of taxable income.