Did you know that you don’t pay taxes on your entire income? The portion of your income that the government taxes is your Adjusted Gross Income, or AGI. To calculate your AGI, the government starts with your total annual income and subtracts a number of expenses, like your IRA contributions and education expenses. These subtracted expenses are your tax deductions.
So how can you calculate your AGI? Let’s get started.
What are tax deductions?
Tax deductions are expenses that the government subtracts from your income to calculate your taxable AGI.
There are two different types of tax deductions: “above the line” and “below the line.”
Below-the-line tax deductions only apply to you if you intend to itemize your deductions, rather than taking the standard deduction. To find out what’s available to you this year, click here and search “standard deduction.” You should only itemize if your below-the-line deductions will net to a higher value than the standard deduction.
Above-the-line deductions, on the other hand, apply to all taxpayers, even those who opted to take the standard deduction. These are the deductions that you’ll subtract from your income to find your AGI.
What above-the-line deductions are available on your 2018 tax return?
Above-the-line deductions are easy to find — they’re listed above the line where you enter your adjusted gross income. This year, you can find them on Schedule 1, Form 1040, in lines 23-36.
Are you a K-12 teacher? (Line 23, educator expenses)
Are you a K-12 teacher, principal, counselor, or aide? And did you work for at least 900 hours during the school year? If so, you can deduct up to $250 for books and supplies that your employer didn’t reimburse you for. And if you’re filing taxes jointly and your spouse is also a qualified educator, you can deduct $500 instead.
Are you in the National Guard, a fee-based government official or a performing artist? (Line 24)
To clarify, a “fee-based government official” is someone who performed services as a state or local government employee and was paid entirely or in part on a fee basis. If this applies to you, fill out Form 2106, and enter the final number here.
Do you have a health savings account? (Line 25)
If you have a health savings account (HSA) that is not part of a retirement plan, fill out Form 8889.
Note: This form tells you to fill out Form 8853 if you have an Archer HSP or a Medicare HSP. But what if you aren’t sure what kind of healthcare plan you have? Check out the 8853 Instructions. They explain qualified healthcare plans in-depth, and are a good place to look if you’re not sure whether your healthcare plan qualifies for tax breaks.
Are you a member of the Armed Forces who had to move for work in the last year? (Line 26)
If you moved sometime in the last tax year for work in the armed forces, this deduction may apply to you. To qualify, your new home must be at least 50 miles away from your old home.
Fill out Form 3903 to apply for this deduction.
Are you self-employed? (Line 27)
We recommend completing Schedule SE before filling in this line. Schedule SE explains who needs to fill out Line 27. If applicable, calculate your deduction using Schedule SE and then fill in that number on Line 27.
Do you have a SEP, SIMPLE, or other non-IRA retirement plan? (Line 28)
If so, check out Pub. 560 for an in-depth description of who can use these deductions. The chart on the second page of this publication will show you how much you can deduct.
Are you self-employed, with healthcare under that business? (Line 29)
If you own your own business and have healthcare under that business, this deduction applies to you. To qualify, your insurance plan must be established under your business.
Tally up your total premium payments for the year and deduct that number here. If you don’t know what your total premium payments are, you can find them in your W-2.
Have you withdrawn from a retirement account, bond or CD? (Line 30)
If you have withdrawn from your retirement account, bond, CD, etc. and had to pay an early withdrawal penalty, fill in this line. You can find the number on Item 2 of Form 1099-INT, the form you use to report interest income.
Have you paid alimony? (Line 31a and 31b)
If you have paid alimony (not child support), fill in the amount you paid here, along with the Social Security Number of the person you paid it to.
Have you have made contributions to a traditional IRA? (Line 32)
This is a big one. If you made contributions to a Traditional IRA (not a Roth!) this year and earned any income, you should fill this out.
However, this deduction has a set maximum. If you’re covered by a retirement plan at work, this chart spells out your limits. If you’re not covered by a retirement plan at work, refer to this chart. Not sure if you’re covered by your employer? Box 13 on your W-2 will let you know.
Do you have an active student loan? (Line 33)
To qualify for this deduction, the following must be true:
- You are not filing under the status “married filing separately.”
- Your AGI is less than $75,000 if you’re single and $150,000 if you’re married.
- You aren’t claimed as a dependent on your parents’ tax returns.
If these apply to you, you can deduct up to $2,500 for the interest you paid on your student loan over the past year. You should have received a form 1098-E from the entity to which you paid interest — this should provide all the info you need.
Adding it all up
You’re almost done! Next, add all of your deductions and enter the total on line 36. Then subtract line 36 from line 22 (your income). Congrats! You’ve calculated your adjusted gross income.
Worried about making a mistake? We understand — tax preparation can be a convoluted nightmare. Fortunately, SuperMoney has compiled a list of the top tax preparation solutions on the market. Click here to compare tax preparation firms and get the most out of your tax season!