What is AGI on taxes?

When filing a federal income tax return, there is a lot to calculate. One of the essential parts of calculating your taxable income is first figuring out adjusted gross income. This is shortly known as the AGI. 

Your adjusted gross income determines eligibility for deductions and credits and is used for other tax purposes. It takes a basic calculation using Schedule 1, Additional Income and Adjustments to Income. 

Calculate your AGI by adding income earned that’s outside of what’s reported on tax forms like W-2 and 1099s and subtracting the adjustments you can make to the total gross income. These adjustments are also known as above-the-line deductions and you can utilize them to reduce taxable income even if you take the standard deduction. That said, you don’t need to itemize deductions in order to claim these adjustments. 

Where to use AGI?

As mentioned, some tax deductions phase out when you make above a certain amount. In these cases, the deduction you can claim will either get reduced or won’t be available anymore. Your AGI is the biggest determination point for figuring these out. 

Use your adjusted gross income to compare what you can and can’t claim on your federal income tax return as well as state and local tax returns. Note that you also need to enter your adjusted gross income on your federal income tax return. 

Other types of adjusted gross income

There is also the modified adjusted gross income. This type of income is used to determine eligibility for certain tax deductions like the IRA contributions deduction. As it speaks for itself, it’s similar to your adjusted gross income but possibly higher as it’s modified. 

You take your adjusted gross income and add back certain adjustments that you’ve made to determine modified adjusted gross income. Your modified adjusted gross income is abbreviated as MAGI and may also be used by your bank to see if you’re eligible for certain loans or new credit lines.