When it comes to filling out your taxes, there’s probably a
lot of requested information on those forms that you don’t know the first thing
about. That’s normal; after all, taxes can be confusing. While you’re not
really expected to know EVERY single term on your list, you should at least
know some of the most important, including and especially the “AGI” and “MAGI”
terms, both of which can determine whether or not you’re eligible for certain
tax credits and exemptions.
All About AGI
AGI simply stands for adjusted gross income. In short, it’s
just a measure of the income (or money) you bring in in a given year. Form 1040
will fill you in on all the allowed adjustments to go along with your AGI, such
as IRA or other retirement plan contributions, half of self-employment taxes
you’ve paid, alimony payments, self-employed health insurance fees, and the
like. You can find a complete listing of all AGI allowed adjustments on the
1040 form.
After adjustments, the total amount of your AGI will play a
role in determining your eligibility for certain credits and exemptions. This
figure will affect, for example, how much you can claim on the dependent care
credit, the adoption credit, the Hope and Lifetime Learning credit, and more.
Do be aware that if your AGI is very high, you may end up not being eligible
for certain deductions, such as total itemized deductions, mortgage insurance
premiums, qualified motor vehicle taxes, and medical deduction allowances.
Moving On to MAGI
Your MAGI, which will often be close to your AGI, or, in
some cases, even the same is your modified adjusted gross income. To arrive at
this figure, you just add certain deductions, if any, back into your AGI. These
deductions include student loan interest, qualified tuition expenses, passive
losses, rental losses, and more. Check with your financial advisor or on your
tax forms for a complete list!
The figure you come up with will play a role in determining
if you are eligible for specific tax deductions, including whether or not your
retirement plan contributions are deductible.
As you can see, the MAGI and AGI are very important and can
really affect your taxes. To make sure you calculate your MAGI and AGI
correctly and that you don’t miss out on allowed deductions and exemptions,
contact your tax professional. #Taxes #NapervilleAccountant
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