Adjusted gross income – AGI is a measure that helps you assess the determination of taxable income and tax bracket. It represents the starting point for calculating the Modified Adjusted Gross Income – MAGI. At the end of each year, you can determine the annual contributions to your retirement account, including deferred taxes. If you need to know how to calculate adjusted gross income, read this article to the end. With this calculator, you can calculate AGI by deducting gross revenue and allowable deductions.

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What is Adjusted Gross Income (AGI)?

You can use the value of adjusted gross income (AGI) to determine how much you need to set aside income tax at the end of the year. You can calculate the amount of your company’s adjusted gross income by considering the total amount of revenue generated in the year of operation, excluding certain revenue deductions. The AGI can impact the amount of tax deductions and eligibility for specific retirement plan contributions, such as the Roth IRA. Many tax organizations such as the IRS use adjusted gross income – AGI to define the obligation to pay taxes. 

If you do not have the calculated value of adjusted gross income – AGI, you must pay tax on the total gross income. In this case, gross income is the sum of everything you earned in one year of business. In the last year, you may have noticed some changes in the issue of deduction by the IRS. You can use modified old or new tax credit rights from now on. Some of the news concerns the repayment period, the method of calculating the credit for repayment, changes in the issue of sick leave credits, business meals, senseless tax returns, business income deduction, and the extension of credit for family leave.

Why is Form 1040 important?

In 2021, you can make changes if you request a tax credit for children, a tax on the advance payment of child tax, or a credit in the field of adoption. You need to include a specific deduction from the amount of gross income to get the value of the AGI. In order to calculate the AGI, it is necessary to deduct 50% of the self-employment tax. That tax is paid, just like your health insurance premiums.

As part of the year’s tax return, you need to report all deductions to the amount of total revenue, including the AGI contained in Form 1040.

Adjusted Gross Income vs. Modified Adjusted Gross Income

Based on the calculated AGI at the end of the year, you can calculate the value of the modified adjusted gross income – MAGI. Individual tax budgets and government programs require the existence of both AGI and MAGI values. As its name suggests, modified adjusted gross income is a modified value of AGI. You make modifications by adding certain elements, such as interest deductions on the amount of the student loan or tuition.

You can also use the MAGI amount to determine your contribution to the Roth IRA in one year. AGI and MAGI may be approximate or the same value in many situations at the end of the year. Both measures are essential in tax returns and affect your eligibility for tax credits. According to the IRS guidelines and rules, modified adjusted gross income – MAGI includes certain deductions in addition to AGI values. Those deductions are passive income, IRA contributions, non-taxable social security payments, rental losses, and any kind of loss from publicly traded partnerships.

Adjusted gross income vs. Net income

When we are talking about adjusted gross income vs. net income, we can say that:

  • AGI is a person’s taxable income after accounting for deductions and adjustments.
  • For enterprises, net income is the profit after accounting for all expenses and taxes.
  • AGI is only appropriate to individuals, while Net income could be used for businesses and individuals.
  • Net income is the amount of money that goes into a person’s pocket after paying all taxes and other deductions.

How to Calculate Adjusted Gross Income (AGI)?

Before the AGI calculation process, it is necessary to know whether you need to file a tax return for that year of operation. If you do not have any debts to the state, it means that you are not entitled to a tax refund. In that case, you don’t even need an AGI calculation.

You can calculate the AGI using the following math expression:

AGI = Total \; gross \; income \; at \; the \; end \; of \; the \; year - Allowable \; deductions \; to \; income

The item of total gross income means the sum of total revenues generated during the year of business. It consists of the amount of money, assets, and value of services received that are considered taxable income. Also included are specific sources of income such as salaries, interest, dividends and royalties, social security benefits, various types of capital gains and losses, taxable state refunds, retirements (IRA), bonuses, and other non-taxable income. If you don’t want to risk receiving tax penalties, you need to report all your income, whether it is taxable or not. Some non-taxable sources include the values ​​of forgiven debts, child support, earned money on a retirement plan, etc.

The next step involves subtracting certain tax deductions from the amount of income. There are two types of deductions above and below the line, representing AGI. Deduction above the line is a deduction to the amount of income, and it directly affects the reduction of the total amount of gross income. Some of these types of income are contributions to traditional IRAs and other retirement plans, half the amount of self-employment tax, health savings contributions, business expenses of government officials, and more. After fulfilling the requirement to deduct certain deductions from gross income, you receive the final value of your AGI.

Adjusted gross income (AGI) Calculator – Example

As with other CalCon calculators, a unique feature lies in the ease of use. Here is one adjusted gross income example. If your out-of-pocket dental bills exceed 8 percent of your AGI in one year, you can deduct the value that exceeds 8 percent of your AGI. You can also use a calculator to be sure that you calculate AGI in the right way.

In addition, the calculator contains three segments. The first segment includes the values included in the calculation of gross income. The second segment contains a list of deduction values, which expands if you select the advanced option. Finally, the third segment offers an overview of the total value of gross income, all deductions, and adjusted gross income. It is up to you to enter the values you are familiar with, and the calculator will do the rest of the work for you. When it comes to AGI’s effects on your taxes, your AGI has direct influences.

Benefits of AGI

There are many benefits to using and calculating adjusted gross income – AGI. This measure has the effect of reducing the amount of income faced with income taxes. At the end of the year, you file a tax return that includes the amount of the AGI. We distinguish many customization options that you can make when calculating the AGI. A deduction depends on the financial and living circumstances of the claimant. However, it is known that changes in tax laws are possible during the year. The conclusion is that if you achieve a lower value of AGI, the deduction amount is higher.

When preparing for an electronic tax return, you can use the AGI value. As such, the AGI is also a type of your identifier, because in that case, you need to find the amount of the AGI from last year to determine that it is the same person who submits the tax return for the current year. You can find the AGI for previous years with the help of different versions of Form 1040. Compared to the AGI achieved last year, the AGI for the current year may vary. This depends solely on the allowable deduction, which may be less or more than the total amount of earnings based on one year. You should note that AGI does not consider the standard tax incentives for calculating taxable income.

AGI value can help you to calculate the value of taxable income

In many countries, you can use the AGI value to calculate the value of taxable income. This further directly affects the value of MAGI. The value of MAGI needs to be below the set limit when you are looking for a particular loan. The IRS sets the limit, and you can apply for tax credits, a lifelong learning credit, a credit to cover school expenses, or a student loan.


What does adjusted gross income mean?

The definition of adjusted gross income – AGI refers to the amount of value you get by deducting the company’s gross income with allowable deductions to the amount of income.

What is my adjusted gross income?

You can get the amount of your AGI by calculating gross income that includes the amount of salary, dividends, and other items, including other income.

Is adjusted gross income before or after taxes?

You can only calculate the amount of adjusted gross income before the tax payment procedure. You need to reduce the amount of total gross income with certain deductions in line with IRS rules.

How to lower adjusted gross income?

You can choose to contribute to a health savings account, make charitable contributions, or contribute to a state-level education plan in order to have lower adjusted gross income – AGI.