Adjusted gross income (AGI) is more than taxable income. It relates to the overall earnings of a single person. When you want to calculate and summarize taxes on your income, it is not the gross income that is required but the adjusted gross income.
How does it work? Profit from the business of any asset is added to other sources of income to generate adjusted gross income. These sources of earnings could be salary, earnings from work or the leased property, interest earned from money in banks, and all other types of income.
Your adjusted gross income may change in many ways for various purposes. AGI is a must-have if you need to calculate tax limits, reductions, or abolishment of defined tax reliefs. Read on to learn more.
Why Is AGI Important?
AGI is very important, especially for people with larger companies or real estate. Its importance is reflected in the good organization of your taxes. Thanks to AGI, you will know which taxes you need to pay, as well as which part of your profit is non-taxable thanks to expenses.
Another good thing is that it will be easier for you to know everything about applying for non-taxable subsidies in addition to calculating your modified adjusted gross income (MAGI). Furthermore, the IRS uses the AGI to determine how much tax each individual should pay and thus prevent fraud of any form.
What Is the Adjusted Gross Income Calculator?
Adjusted gross income calculator is a specialized tool that will help you calculate your AGI in an easier and more practical way. The AGI calculator works on the principle of entering your data on each income separately, as well as non-taxable extensions, whereby it deducts that extension from the original income.
This is similar to a net income. The only difference is that the net income refers to the company, while adjusted gross income applies exclusively to the individual. With AGI you will know how much you as an individual are required to pay in taxes.
Moreover, this tool will save you time and spare you from over-writing each item individually. It can also shorten the process of calculating modified adjusted gross income.
AGI Formula
You might wonder: How do they calculate your AGI? It is pretty simple. AGI is calculated by deducting some adjustments from the gross profit that would lower your income.
AGI = Gross Income – Adjustments in Income
Gross income is actually a summarized income that you get in one year. For example, it’s the sum of all money you get from your salaries, or business that you own, as well as other money that is taxable. Your gross income is used in several budgets of payment you get from determining the profitability and sustainability of your business.
Here are some examples of taxable incomes:
- Income from self-employment
- Copyright and related rights income
- Industrial property rights income
- Real estate income
- Leasing movable property income
- Income of athletes and sports professionals
- Catering and personal services income
- Other incomes earned and taxed in another country for taxpayers
What should be pointed out here is that the holder of the copyright or related rights is obliged to express the qualified income (income to which the tax relief is applied), especially in the tax balance.
As we said before, adjustments to incomes are expenses that will decrease your income, both gross and total. These are some examples of adjustments to incomes:
- Payment of a person with disabilities
- Scientific research and development
- Payment for a dependent family member
- Acquiring intangible assets (licenses for necessary software)
- Non-taxable rewards
- Recreation and team-building
- Advisory services from economic entities that are not related to the taxpayer
- Recognition of marketing costs as a whole
- Protection of intellectual property, etc.
How Do I Find My AGI From the Last Year?
Have you lost your AGI records since last year? Don’t worry, you have two good options to find it again:
- One option is to go directly to the official IRS website and ask them to send you the requested information via email. You will need to wait about one working week.
- Another option is to call them at this phone number: 800-908-9946, and also ask them to email you a copy of the tenor. Waiting for this will take proximally less than one working week.
- If you don’t want to wait longer, then calling them might be a better option. However, keep in mind that it will cost you some money, and the line is mostly busy.
FAQs
What Is AGI Example?
AGI is pretty much easy to calculate. First, you need to add up and make a sum of all your incomes, and then deduct every non-taxable expense from it. If the deduction is bigger, then your taxes will be lower. It’s made this way to balance taxes for people with less money.
For example, your AGI is $100,000, but you spent $20,000 on tuition over 15% of your AGI then you can deduct $5,000. If your AGI was $30,000 instead of $100,000, you would deduct $15,500, which is clearly a big sum in this case.
Does 401k Lower AGI?
Absolutely, yes! 401K is a form of forced savings, as money cannot be easily withdrawn from your 401K account. “Company matching” is a return on investment of 50% -100% at the start. The money is tax-free, so it can move you into a series of “tax brackets” at the end of the year (better for you, less tax).
Lastly, “interest on interest” will double your money on a 401K account every 7 years. Your investment grows tax-free. The money you set aside to buy 401K stocks is before income tax is taken. Tax is not paid on money from your 401K plan until you decide to withdraw money from the plan.
We will soon post an article that shows a simple calculation of how much difference it makes that money is tax-free. If your company offers a “matching 401K plan” (for example, they add to your 401K plan as much as you allocate), do not think twice, register for participation immediately.