Adjusted gross income (AGI) Calculator
AGI calculator or adjusted gross income calculator is a tool to estimate your adjusted gross income (AGI), which helps you determine your taxable income and tax bracket. This calculator computes your gross income and subtracts permitted adjustments to arrive at your AGI. The IRS uses your AGI to calculate your taxable income and discover the tax credits and benefits you are qualified to claim.
AGI is also the starting point to figure out your modified adjusted gross income (MAGI), which determines how much you’re qualified to contribute each year to your tax-deferred retirement accounts. Here, you will learn the answers to what is AGI, how to calculate AGI, and how AGI impacts your taxable income and tax bracket.
Uses of AGI
For example, you may be able to deduct unreimbursed medical expenses over 10% of your AGI if you choose to itemize deductions. Hence, if you report a medical expense of $15,000 not reimbursed by insurance and have an AGI of $100,000 , you will be able to deduct the $5,000 that exceeds 10% of your AGI ( 10% of $100,000 = $10,000 ). But if your AGI was $50,000 , you will be able to deduct $10,000 from your AGI, which is the amount that exceeds 10% of your AGI ( 10% of $50,000 = $5,000 ). Thus, the lower your AGI, the greater the deduction.
The IRS also uses AGI to prevent taxpayer fraud when you submit your federal tax return electronically. So when you e-file your federal tax return, you will need your AGI to digitally sign and verify your identity or set up a Personal Identification Number (PIN) for your verification.
Since AGI is essentially your gross income minus your adjustments to income, some people refer to it as a net income. But your adjusted gross income is different from net income. While AGI is the ‘total taxable income’ of an individual, net income refers to the ‘total after-tax’ income. Net income helps companies determine how efficient they operate, but AGI helps the IRS determine how to process an individual’s taxes for the year.
AGI is also the starting point to arrive at your modified adjusted gross income (MAGI). It is generally the AGI with certain excluded income added back. MAGI determines eligibility for other significant tax benefits, including whether you can make tax-deductible contributions to an individual retirement account or contribute to a Roth IRA.
Understanding Gross Income
There are different components to gross income in respects to an individual and a company. An individual will easily be able to determine their gross income by consulting a recent pay stub or calculating their hours worked and wage. Alternatively, gross income of a company may require a bit more computation.
An individual’s gross income is used by lenders or landlords to determine whether that person is a worthy borrower or renter. When filing federal and state income taxes, gross income is the starting point before subtracting deductions to determine the amount of tax owed.
A company calculates gross income to understand how the product-specific aspect of its business performed. By using gross income and limiting what expenses are included in the analysis, a company can better analyze what is driving success or failure. For example, if a company is interested in knowing how a specific product line is performing, it does not want to see the company’s rent expense included in the performance as that is an unrelated, administrative expense.