28 Feb What is Adjusted Gross Income?
What is Adjusted Gross Income (AGI)?
The IRS labels it as “the most important number” on your tax return. So what is it?
Adjusted Gross Income or AGI is your total taxable income and the metric by which the IRS determines how much income tax you owe. As its name suggests, it is a variation of gross income, which refers to all the money made in a certain year. Certain deductions will affect how AGI is calculated, such as a health savings plan, 50% of self-employment tax, moving expenses, and paid alimony among others.
Keep in mind that deductions for AGI aren’t necessarily the same as taking general tax deductions. AGI is also different from net income, which is your profit after taxes. AGI deductions will appear between lines 23 and 35 on a form 1040.
Why Is Adjusted Gross Income Important?
AGI is important for a few reasons. Among them is that it determines what deductions you can take. For example, you want to take a deduction for student loan interest. You can take up to $2500 as a deduction for it if your AGI is under $85,000 for the year (if you’re filing single). Your gross income might’ve been $100,000, but if your AGI is $80,000, then you can still take the deduction. See why AGI is important?
Adjusted Gross Income is also an often-used metric for state taxes. The state mostly goes by your AGI rather than your gross income to determine how much you owe.
Your AGI will also be important in the future. That number is not only an identifier for you as a taxpayer, but it’s also necessary if you e-file your return. The IRS requires your AGI from the previous year any time you e-file.
If you need help with your returns or have any tax questions, our tax experts can help you. Just call us at 614-524-4888 or 614-310-0506!
