If you've ever stooped through a short door or tried to reach a book off the top shelf you know how uncomfortable it is to be the wrong size. The same thing is true with taxes – many tax benefits are only available to families and individuals whose AGI (adjusted gross incomes) or MAGI (modified adjusted gross income) falls within certain limits.
Calculating adjusted gross income (or AGI) is actually quite simple. Take all the income you report on your taxes, your "gross income," minus any deductions (called "adjustments") and what's left is your adjusted gross income. The following items are all expenses you can legally deduct from your gross income:
Employment Expenses
- One-half of your self-employment tax
- Contributions to qualified retirement, investment and savings plans
- Performing artists' qualifying expenses
- Educator expenses up to $250
- Rent and royalty expenses
Medical Expenses
- Archer Medical Savings Accounts (MSAs)
- Health Savings Account (HSA) contributions
- Self-employed health insurance
Investment Expenses
- Capital losses up to $3,000.
- Interest forfeited by withdrawing certificates of deposit (CDs) before their maturity date
Business Expenses
- General business expenses
- Domestic production activities deduction
- Net operating losses (NOLs)
Educational Expenses
- Student loan interest up to $2,500
- Tuition and fees up to $4,000
- Travel expenses from attending National Guard or military reserve meetings more than 100 miles from home
Other Expenses
- Jury duty pay turned over to your employer
- Legal fees for illegal discrimination claims
- Moving expenses
- Unemployment benefits repaid because of trade readjustment allowances
Of course, if you are nearly finished or have already filed your tax return, finding your AGI is easy – it's already on your return! You can find your AGI on line 37 of the 2007 Form 1040, line 21 of the 2007 Form 1040A, or line 4 of 2007 Form 1040EZ.
Some tax benefits are dependent not on your AGI, but on your MAGI, or modified adjusted gross income, which is just your AGI with certain deductions added back in. Unlike your AGI, you may have several MAGIs, depending on which deductions you are required to include in order to receive a benefit. For example, your MAGI for the student loan interest deduction is your AGI added to the amount you deducted for tuition and fees, foreign earned income, and other foreign income and expenses.
Once you calculate your AGI and MAGI, it will be much easier to determine which tax benefits you qualify for. Sometimes your AGI will be too high for you to claim a certain credit. Sometimes it will be too low. But other times, it will be just right!
Learn How to Deduct Mileage for Commuting and other hidden Tax Credits that can save you tons of money.
Ron Finkelstein is NOT a Tax Attorney or an accountant. He is merely a small business owner who has paid a lot of money over the years to learn a whole lot about Taxes and Time Management. I hope you enjoyed learning how to maximize your limits on qualifying for tax deductions and credits
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