How to Calculate Your AGI for Tax Filing

Calculating your adjusted gross income (AGI) is one of the first steps in determining your taxable income for the year. You can determine your tax liability for the year only after you've identified your adjusted gross income. Even if you are not required to file your taxes, you may still be eligible for a tax refund if you paid income tax or are eligible for certain refundable credits. The two main steps in AGI calculation are gathering income statements and subtracting allowable deductions.

How to Calculate Your Adjusted Gross Income (AGI)

Calculating your AGI requires just two steps:

1. Gather all your income statements for taxable income: salary, self-employment, and any income reported on Forms 1099. Add them up to arrive at your total or gross income.
2. Subtract allowable deductions and expenses from the sum.

How to Compile Your Income Documents

The first step in computing your AGI is to determine your income for the year. Income can be in the form of money, property, or services that you receive during the tax year.

It includes your traditional salary and wages, which are reported on Form W-2, any earnings from self-employment ventures, and any other income reported on 1099 forms, such as investment dividends and retirement income.

Proceeds from broker and barter exchange transactions are reported on Form 1099-B. Proceeds from real estate transactions are reported on Form 1099-S. Any taxable interest you earned is reported on Form 1099-INT, and any investment dividends are reported on Form 1099-DIV. They're all considered part of your taxable income.

Identifying Sources of Taxable Income

You must also include these sources of taxable income:

• Business income
• Farm income
• Union strike benefits
• Taxable refunds, credits, or offsets of state and local income taxes
• Long-term disability benefits received before minimum retirement age
• Jury duty fees
• Security deposits and rental property income
• Awards, prizes, gambling, lottery, and contest winnings
• Back pay from labor discrimination lawsuits
• Unemployment benefits
• Capital gains
• Severance pay
• Earnings from rental real estate, royalties, partnerships, S corporations, trusts, and license payments

You can calculate your total income by adding all these amounts together.

Exempt Income: What's Not Included in AGI

Some types of income aren't taxed. These sources of income don't count toward your AGI:

• Workers' compensation benefits
• Child support benefits
• Life insurance proceeds, unless the policy was turned over to you for a price
• Disability payments
• Capital gains on the sale of your primary home
• Money received as a gift or other inherited assets
• Canceled debts that are intended as a gift to you
• Scholarships or fellowship grants
• Foster care payments
• Money rolled over from one retirement account to another provided that it was executed via a trustee-to-trustee transfer

Calculating Deductions to Adjust Your Gross Income

You can subtract certain amounts from your total income to arrive at your final AGI.

• Half the self-employment tax (the employer-equivalent share)
  
• Classroom expenses for teachers and educators up to $300 or $600 if married filing jointly and both spouses are eligible educators
• Self-employed health insurance premiums even if the policy covers your spouse and your dependents
• Contributions to certain retirement accounts
• Student loan interest paid
• Contributions to health savings accounts (HSAs)
• Moving expenses for members of the armed services
• Penalties on early withdrawals of savings
• Certain business expenses of reservists, performing artists, and fee-basis government officials
  

Understanding AGI and Modified AGI (MAGI) Differences

A common mistake is to use AGI in cases where the modified AGI (MAGI) should be used instead.

Your MAGI is your adjusted gross income with some deductions added back. Your AGI is used to determine the amount of income tax you owe and certain credits for which you're eligible. Your modified AGI is used to determine eligibility for other tax issues, such as deducting contributions from a traditional IRA and eligibility to contribute to a Roth IRA.

When to Seek Help From a Tax Professional

It might be more practical to use the services of an experienced tax professional unless you have the time and aptitude to follow the IRS instructions and conduct any necessary research. Hiring a tax professional may cost you more, but it could be well worth it considering the time saved and the frustration prevented from trying to figure out all the rules on your own.

The cost of a tax professional might also be offset by tax credits or other savings they might find for you.

The Bottom Line

The IRS instructions to figure out your AGI alone might not be sufficient for someone inexperienced. To avoiding costly mistakes, consider having a tax professional review your results to ensure their accuracy even if you complete the process yourself.

Correction—July 19, 2024: This article has been corrected to state that the IRS advises filing a tax return even if you don't have to because you might be eligible for a refund.