What is Adjusted Gross Income (AGI)?
Learn what Adjusted Gross Income (AGI) is, how it's calculated, and its significance in tax planning and financial management.
Adjusted Gross Income (AGI) is a key term in tax planning, representing an individual’s total gross income minus specific deductions. It’s a crucial measure used by the IRS to determine how much of your income is taxable.
Understanding AGI
AGI is the starting point for calculating your tax liability. It includes all sources of income, such as wages, dividends, and capital gains, then adjusts for certain deductions.
Components of AGI
- Income: Wages, salaries, bonuses, business income, rental income, interest, and dividends.
- Adjustments: Deductions such as retirement plan contributions, student loan interest, alimony payments, and educator expenses.
Calculating Your AGI
To calculate AGI, start with your total income from all sources and subtract the allowable deductions. These deductions are specific and are different from standard or itemized deductions that are subtracted from AGI to determine your taxable income.
Importance of AGI in Financial Planning
- Tax Planning: AGI is a threshold for many tax credits and deductions.
- Eligibility for Financial Aid: AGI often determines eligibility for scholarships and student loans.
- Retirement Planning: AGI influences IRA contribution limits and deductions.
Enhancing Tax Planning with ProjectionLab
ProjectionLab helps you understand and plan for your tax obligations. Providing valuable insights into how different income sources and financial decisions can affect your future tax liabilities. Using ProjectionLab, you can estimate your future tax obligations, explore tax-efficient strategies, and gain a clearer understanding of your financial future. Start planning for a more tax-efficient future with ProjectionLab.
