Monday, December 10, 2012

Calculate Adjusted Gross Income

AGI is your income before the standard deduction and personal exemption.


Adjusted gross income, often shortened to AGI, is used to determine an individual taxpayer's tax liability for income tax purposes. Adjusted gross income is very simple to calculate, provided you have your income information from the prior tax year, which is generally reported on your Form W-2 or Form 1099. If you run your own business or are self-employed, you will have to calculate your total gross income yourself before you can calculate your adjusted gross income.


Instructions


1. Determine your gross income. On a Form W-2, your gross income is reported in Box 1 under wages, tips and other compensation. On a Form 1099-MISC, your gross income is reported in Box 7 under nonemployee compensation. You may also have additional income not reported on these forms, including interest earned from investments, stocks dividends and trust payments, which must also be included when calculating your total gross income.


2. Determine what deductions you are eligible to claim. There are certain deductions you can claim "above the line," which reduces your gross income prior to determining your income tax liability. These include alimony payments, contributions to your IRA, the one-half self-employment tax credit, contributions to self-employed HSA, and interest paid (not owed) on student loans.


3. Calculate the total amount of deductions you are eligible to claim by adding up the maximum amounts you are allowed for each deduction you are taking.


4. Subtract the total amount of the deductions you are claiming from your total gross income calculated in Step 1. Your formula should resemble:


Total Gross Income - Total Amount of All Deductions = Adjusted Gross Income

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