Did you know that you don’t pay taxes on your entire income? The portion of your income that the government taxes is called your Adjusted Gross Income, or AGI. How does the government calculate your Adjusted Gross Income? They start with your total annual income, and then subtract a set of tax deductible expenses.
So how can you calculate your AGI? Let’s get started.
What are tax deductions?
Tax deductions are expenses that you subtract 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 if you intend to itemize your deductions, rather than taking the standard deduction. View the chart below to learn which standard deduction is available to you:
|Filing Status||Standard Deduction|
|Married Individuals Filing Joint Returns and Surviving Spouses||$24,000|
|Heads of Households||$18,000|
|Unmarried Individuals (other than Surviving Spouses and Heads of Households)||$12,000|
|Married Individuals Filing Separately||$12,000|
You should only itemize if your below-the-line deductions will net to a larger figure than the standard deduction.
Above-the-line deductions, on the other hand, apply to all taxpayers, even those who take the standard deduction. These are the deductions that you’ll subtract from your total income to calculate your Adjusted Gross Income.
Which expenses can you deduct from your taxable income?
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, you’ll also have to fill out Form 2106.
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.
Calculate your Adjusted Gross Income
You’re almost done! All you have to do now is add up all of your deductions and enter the total on line 36. Then, to calculate your AGI, just subtract line 36 from line 22 (your gross income). Congrats! You’ve calculated your AGI.
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