How to calculate Adjusted Gross Income (AGI)? Confused about deductions and taxes

7 AGI (Adjusted Gross Income) is often misunderstood because of how it's calculated. Let me clear this up: AGI = Total Gross Income - Adjustments to Income (also called "above-the-line deductions") The key thing to understand is that taxes withheld from your paycheck are NOT part of the AGI calculation at all. Those are simply prepayments of your tax liability. For your example with $235k gross income, the $80k in taxes doesn't factor into AGI. Only certain specific adjustments would reduce your gross income to get to AGI, such as: - Traditional 401k/IRA contributions - Student loan interest (subject to limits) - Health Savings Account contributions - Self-employed health insurance premiums - SEP/SIMPLE/qualified retirement contributions for self-employed - Alimony payments (for divorces before 2019) So if out of your $10k in deductions, let's say $8k is for traditional 401k and $2k is for things like health insurance premiums (which usually aren't AGI adjustments), your AGI would be approximately $235k - $8k = $227k.

11 After struggling with similar AGI confusion last year, I found this amazing tool at https://taxr.ai that helped me understand exactly what counts toward AGI and what doesn't. Their system actually analyzed my tax documents and broke down my income sources and potential above-the-line deductions. I was amazed at how it highlighted several adjustments I could make to lower my AGI that my previous tax software completely missed!

9 Just wanted to follow up about that taxr.ai site someone mentioned. I was skeptical but decided to give it a try with my complicated mix of income sources. It actually identified that my HSA contributions weren't being properly applied as an AGI reduction in my calculations! Also showed me that I could deduct some of my business expenses from contract work BEFORE calculating AGI rather than after. Ended up saving me about $3,200 in taxes by lowering my AGI enough to qualify for another credit. Definitely helped clear up my confusion!

15 If you're struggling to get clear answers about your AGI calculation or other tax questions, I was in the same boat until I discovered https://claimyr.com - they got me through to an actual IRS agent in under 20 minutes after I'd spent DAYS trying to get through on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with walked me through exactly how AGI is calculated and which of my specific deductions qualified as "above-the-line." Having that official confirmation directly from the IRS gave me complete confidence in my calculations, especially for some of the gray areas around my self-employment deductions.

13 I need to eat my words about that Claimyr service. After my skeptical comment, I decided to try it since I was desperate for answers about my AGI calculation with some unusual foreign income. Not only did I get through to an IRS agent in about 15 minutes, but they confirmed exactly which of my foreign income exclusions affected my AGI calculation. Saved me from making a significant mistake on my return! Sometimes it's worth admitting when you're wrong - this service actually delivered what it promised.

18 Something important that nobody's mentioned yet: your AGI is also used to determine eligibility for a bunch of tax benefits like Roth IRA contributions, certain credits, and medical expense deductions. So calculating it correctly isn't just about accuracy - it can actually open up or close off different tax advantages.

5 I worked as a tax preparer for a few years and the AGI confusion is super common. One thing I always tell people - check Line 11 on your Form 1040 from last year. That's your AGI. Then look at Lines 1-10 to see what adjustments were made. It's much easier to understand when you see your own real numbers rather than trying to figure it out conceptually.

One thing that really helped me understand AGI was realizing that it's basically your "adjusted" income that the IRS uses as a baseline for everything else. Once you have your AGI, that's when you can take either the standard deduction ($13,850 for single filers in 2024) or itemized deductions to get to your taxable income. So in your example with $235k gross income, let's say you have $15k in traditional 401k contributions and $3k in HSA contributions. Your AGI would be $235k - $15k - $3k = $217k. Then you'd subtract either the standard deduction or itemized deductions from that $217k to get your actual taxable income. The taxes withheld from your paycheck ($80k in your case) don't affect AGI at all - those are just prepayments that get compared to your final tax liability to determine if you owe more or get a refund.

Another common source of confusion I see is with educator expenses and moving expenses. If you're a teacher, you can deduct up to $300 in classroom supplies as an above-the-line deduction that reduces your AGI. But moving expenses are tricky - they only qualify as AGI adjustments if you're active duty military. Also worth noting that if you have student loan interest, you can deduct up to $2,500 per year as an AGI adjustment, but this phases out at higher income levels. For 2024, it starts phasing out at $75,000 AGI for single filers and completely phases out at $90,000. One last tip: if you're self-employed or have 1099 income, you can deduct half of your self-employment tax as an adjustment to income. This often gets overlooked but can be a significant AGI reduction for freelancers and contractors.