What Exactly Is Adjusted Gross Income
According to IRS publications Adjusted Gross Income (AGI) is your total income minus certain adjustments. To expand upon that definition, Adjusted Gross Income is a tax term for an intermediate figure between the gross total income and taxable income. It is also a starting point for calculations of certain allowable deductions and exemptions and tax benefits that are arrived at based on or limited by income. The intermediate number for AGI is arrived at after allowable reductions are taken.
After Adjusted Gross Income is calculated it is also used to calculate limitations for certain itemized deductions. When itemizing medical expenses, they are limited to the amount over a percentage of AGI (projected at 7.5% of AGI in 2008). Miscellaneous deductions are allowed only if they exceed a specified percentage of AGI (projected at 2% in 2008). Phaseouts of certain itemized deductions are required if your AGI is above certain threshold amounts. You may also lose part of the benefit of your exemptions due to phaseout requirements if your AGI is above a certain designated amount based on your filing status.
Adjusted Gross Income is often confused with the terms total income or total taxable income. Total income is all income or gross income required to be reported on the tax return. Taxable income is then determined by reducing AGI by either a Standard Deduction or Itemized Deductions. Taxable Income is the term used for the income that your tax will be calculated on.
After the Adjusted Gross Income is calculated and is reduced by the Standard or Itemized Deduction to arrive at Taxable Income, the tax calculation can then be completed. Once tax is calculated based on AGI, any applicable credits that are available to reduce the tax liability are applied to the tax liability. Adjusted Gross Income from the federal income tax return is also the starting point for preparation of some state returns.
Any U.S. tax advice contained in this electronic communication was not intended or written to be used, nor can be used, by any recipient of this communication for the purpose of avoiding penalties that might be imposed pursuant to the Internal Revenue Code or U.S. Treasury Regulations, or any other state or local law or regulation.
Content of this site is not intended to replace professional consultation.
This site needs an editor - click to learn more!
Editor's Picks Articles
Top Ten Articles
Content copyright © 2019 by Kate Woods. All rights reserved.
This content was written by Kate Woods. If you wish to use this content in any manner, you need written permission. Contact BellaOnline Administration for details.