Adjusted Gross Income, or AGI, is an important figure that is used to determine your taxes and financial aid eligibility. It is the amount of money you earned during the year after subtracting certain deductions. It is also known as “taxable income” or “gross income minus adjustments.”
Your AGI is reported on your federal income tax return each year. If you have a job, your employer will report your income to the IRS on a W-2 form. If you are self-employed, your income is reported on a 1099 form. You can also include dividend income, capital gains, and other income sources in your AGI.
What is Included in AGI?
Your AGI includes all of your taxable income such as wages, salaries, tips, bonuses, self-employment income, and certain types of rental income. It also includes any interest income, dividends, capital gains, alimony, unemployment benefits, Social Security benefits, and other types of income.
In addition, AGI also includes certain deductions such as contributions to a traditional IRA or health savings account. It also includes any student loan interest or tuition and fees deduction, as well as certain itemized deductions such as medical expenses, state and local taxes, and charitable contributions.
What is Not Included in AGI?
Certain types of income are not included in your AGI. These include certain types of Social Security benefits, tax-exempt interest income, gifts and inheritances, and foreign income. In addition, AGI does not include any tax credits, deductions for moving expenses or certain job-related expenses, or any other itemized deductions.
How Does AGI Impact My Taxes?
Your AGI is used to determine your tax bracket and adjust certain tax credits and deductions. For example, if your AGI is below a certain level, you may be eligible for certain tax credits or deductions such as the earned income tax credit or the child and dependent care credit. Your AGI is also used to determine your eligibility for certain deductions such as the student loan interest deduction or the mortgage interest deduction.
Your AGI is also used to determine your eligibility for certain types of financial aid such as scholarships and grants. The higher your AGI, the less likely you are to qualify for certain types of financial aid.
How Can I Lower My AGI?
There are several ways to lower your AGI and reduce your taxable income. One way is to contribute to a traditional IRA or health savings account. These contributions can reduce your taxable income and your AGI. In addition, you can take advantage of certain deductions such as the student loan interest deduction or the mortgage interest deduction.
You can also take advantage of certain tax credits such as the earned income tax credit or the child and dependent care credit. These credits can reduce your taxable income and your AGI. Finally, you can itemize your deductions to reduce your taxable income and your AGI.
Conclusion
Adjusted gross income, or AGI, is an important figure used to determine your taxes and financial aid eligibility. It is the amount of money you earned during the year after subtracting certain deductions. Your AGI is reported on your federal income tax return each year. It includes all of your taxable income such as wages, salaries, tips, bonuses, and other income sources, as well as certain deductions.
Your AGI is used to determine your tax bracket and adjust certain tax credits and deductions. In addition, it is used to determine your eligibility for certain types of financial aid. There are several ways to lower your AGI, such as contributing to a traditional IRA or taking advantage of certain deductions and credits.
