How to calculate adjusted gross income

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how to calculate adjusted gross income

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How to calculate adjusted gross income

Answer: Adjusted Gross Income (AGI) is an important figure used on tax returns in the United States. To calculate your AGI, you need to start with your gross income and make certain adjustments. Here is how you can calculate your adjusted gross income:

  1. Start with Gross Income: Your gross income is the total amount of money you earned in a year from all sources, such as wages, salaries, dividends, and rental income.

  2. Subtract Above-the-Line Deductions: Next, you deduct above-the-line deductions from your gross income. These deductions include contributions to retirement accounts, student loan interest, alimony payments, and health savings account contributions. These deductions are subtracted to arrive at your AGI.

  3. Include Business Expenses: If you are self-employed, you can deduct your business expenses from your gross income to arrive at your AGI.

  4. Exclude Certain Income: Some types of income are not included in AGI, such as gifts, inheritances, life insurance payouts, and some qualified distributions from retirement accounts.

  5. Calculate AGI: Once you have made all the necessary adjustments, subtract the total deductions from your gross income. The result is your Adjusted Gross Income.

By calculating your Adjusted Gross Income accurately, you can determine your eligibility for various tax credits, deductions, and other tax benefits. It is crucial to calculate your AGI correctly to avoid errors on your tax return.