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In addition, AGI is an important benchmark to determine other types of benefits one can avail when it comes to filing tax returns.
Gross income is nothing but wages, interest income, income from retirement accounts, capital gains, alimony, dividend income, rental income, royalty income, farm income, unemployment income and certain other types of income.
Adjustments refer to certain expenses that are used to reduce your total income. In order to claim these adjustments, it is not necessary to itemize your deductions. After taking into account your adjustments, the balance taxable income is your adjusted gross income or AGI.
The following items can be adjusted from your gross income in order to calculate your adjusted gross income when filing your income tax returns:
- Classroom expenses
- Qualified performing artists and other professions
- IRA deduction
- Student loan interest
- Tuition and fees deduction
- Health savings account deduction
- Moving expenses
- Self-employment tax deduction
- Self-employment health insurance
- SEP deduction
- Early withdrawal penalty
- Alimony paid
- Domestic Production Activities Deduction
In your tax form, in line 22, you mention your gross income; whereas you have to add all amounts you have mentioned from line 25 to line 35. Enter the total amount in line 36. This amount is nothing but your total adjustments. Now using a calculator, subtract from the amount mentioned in line 22 the amount mentioned in line 36. The balance is the adjusted gross income which has to be filled in line 37.
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