Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is gross income minus above-the-line deductions (adjustments to income). AGI is the key threshold used to determine eligibility for many tax credits, deductions, and phase-outs on Form 1040.
Exam Tip
AGI = Gross Income - Above-the-Line Deductions. It is the starting point for most tax calculations and determines phase-outs for credits and deductions.
What is Adjusted Gross Income?
AGI is calculated by taking all gross income and subtracting specific above-the-line deductions. It is the starting point for most individual tax calculations.
AGI Calculation
| Step | Item |
|---|---|
| Gross Income | Wages, interest, dividends, business income, capital gains, IRA distributions, pensions, rental income |
| Minus Adjustments | HSA, IRA, student loan interest, SE tax, SE health insurance, alimony (pre-2019) |
| = AGI | Line 11 on Form 1040 |
Why AGI Matters
| Provision | AGI Threshold |
|---|---|
| Medical deduction floor | 7.5% of AGI |
| Casualty loss floor | 10% of AGI |
| Charitable contribution limit | 60% of AGI (cash) |
| Roth IRA phase-out (single) | $150,000-$165,000 MAGI |
| Child Tax Credit phase-out | $200,000 (single) |
Exam Alert
AGI is the STARTING POINT for most individual tax calculations. Know the difference between AGI and MAGI (Modified AGI adds back certain deductions). AGI appears on Line 11 of Form 1040 and determines eligibility for almost every credit and deduction.
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Related Terms
Above-the-Line Deduction
Above-the-line deductions are adjustments subtracted from gross income to arrive at adjusted gross income (AGI), available to all taxpayers regardless of whether they itemize. Common examples include educator expenses, HSA contributions, self-employed health insurance, student loan interest, and IRA contributions.
Modified Adjusted Gross Income (MAGI)
Modified Adjusted Gross Income (MAGI) is AGI with certain deductions or exclusions added back, used to determine eligibility for Roth IRA contributions, education credits, and other tax benefits with varying definitions depending on the specific tax provision.
Itemized Deductions
Itemized deductions are specific expenses taxpayers can deduct from adjusted gross income instead of the standard deduction, including state and local taxes, mortgage interest, charitable contributions, and certain medical expenses.
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