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AGI vs. MAGI

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AGI vs. MAGI

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Your adjusted gross income, or AGI, is an important line item on your taxes, as it affects your eligibility for certain other tax credits or exemptions. The same is true of your modified adjusted gross income, or MAGI.

Typically, your MAGI (modified adjusted gross income) and AGI (adjusted gross income) are close in value to one another. However, the small adjustments that tweak your AGI into your MAGI could have an important bearing on your overall tax return.

Keep in mind we calculate these figures for you based on your answers to some simple questions.

AGI calculation

Your adjusted gross income is all of the income you bring in, less certain adjustments. You can find the allowable reductions to your income on the front page of your Form 1040. Commonly used adjustments include the following:

  • IRA and self-employed retirement plan contributions
  • Alimony payments
  • Self-employed health insurance payments
  • One-half of any self-employment taxes paid

Other adjustments used in calculating AGI include the following:

  • Health savings account deductions
  • Penalties on the early withdrawal of savings
  • Educator expenses
  • Student loan interest
  • Moving expenses
  • Tuition and fees
  • Deductions for domestic production activities
  • Certain business expenses of performing artists, reservists, and fee-basis government officials

AGI effects on your taxes

The amount of your AGI affects how you can use numerous credits and exemptions. Your AGI affects the amount you can claim for the dependent care credit, credits for the elderly or permanently disabled, the adoption credit, the child tax credit, the Hope & Lifetime Learning credits, and the earned income credit. Many deductions phase out or disappear altogether if you have an AGI above certain limits. Deductions affected by your AGI include the following:

  • Medical deduction allowance
  • Total itemized deductions
  • Miscellaneous itemized deductions
  • Mortgage insurance premiums
  • Qualified motor vehicle taxes
  • Charitable contributions

MAGI calculation

To calculate your modified adjusted gross income, take your AGI and add back certain deductions. Many of these deductions are rare, so it’s possible your AGI and MAGI can be identical. According to the IRS, your MAGI is your AGI with the addition of the following deductions, if applicable:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions, taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership

MAGI effects on your taxes

Your MAGI is used as a basis for determining whether you qualify for certain tax deductions. One of the most notable is in determining whether or not your contributions to an individual retirement plan are deductible. (like the traditional IRA and the Roth IRA)

For example, as of 2014, if you were a single filer and covered by a retirement plan at work, you couldn’t take an IRA deduction if you had an MAGI of $69,000 or higher.  You could still contribute up to the allowable limit, but your contribution would not be deductible.  You also couldn’t take a deduction for tuition and fees if you had an MAGI of $80,000 or higher as a single, or $160,000 if married and filing jointly.

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