The Modified Adjusted Gross Income
On a tax return, the modified adjusted gross income or MAGI is used to determine whether a taxpayer qualifies for certain tax benefits, such as the Child Tax Credit, deducting contributions to your individual retirement account (IRA), and many others. You may see guidelines and instructions which refer the limitations based on your modified adjusted gross income (AGI), but what does this mean? Let's see what this figure is.
How the MAGI Is Calculated
The modified AGI does not have a line number on your Form 1040, but you can use Line 11 for your adjusted gross income as a starting point. Your modified AGI is calculated based on your AGI, certain tax deductions, and tax-exempt interest. While your adjusted gross income is an adjustment of your total or gross income, the modified AGI is a further modified version of this adjusted figure - confusing? We get IT. IT is Income Taxes and when you file online using the eFile Tax App, both your AGI and MAGI are calculated for you which allows eFile to claim all the tax credits, deductions, and other tax savings you qualify for. You do not need to have extensive tax knowledge to save money on taxes.
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Your AGI determines the amount of your income that is taxable; this is your income after factoring in certain above-the-line deductions also known as adjustments to income. These adjustments include student loan interest payments, HSA contributions, and more. It does not include your standard deduction as this is factored into your taxable income by subtracting it from your AGI along with the Qualified Business Income Deduction (QBI) if you have self-employment income.
The MAGI is calculated by determining your total gross income, calculating your AGI from that, and then adding back your above-the-line deductions.
For all the geeks out there, let's follow the steps on Form 1040 to show exactly how your AGI and MAGI are calculated - note that this is all done by the eFile app for you.
First, open the Form 1040 for this year.
All of your income is calculated in lines 1-8 and then added up in line 9 where your total income is listed. Then, we list your adjustments to income from Schedule 1 and subtract it from your total income, resulting in your adjusted gross income on line 11.
In order to calculate your MAGI, you would add back your adjustments to income from your AGI.
From here, we subtract your standard deduction or itemized deductions as well as your QBI deduction if applicable. This results in your taxable income where eFile will apply the tax brackets or rates and calculate your total taxes on line 16.
Spare yourself the hassle and stress: file online with eFile.com and be done with IT.
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Your AGI is an important figure when it comes to taxes because it is needed as a form of identity verification when you file your taxes next year - learn more about filing with your AGI so you do not need to scramble to find it this year.
Modified AGI
Once your income has been adjusted (your AGI), this figure then gets modified to add back in some items, including foreign earned income, rental losses, the student loan interest that was deducted, and other items. For most taxpayers, your AGI and MAGI are the same figure; for those who pay student loan interest each year, it is your AGI with this deduction added back in.
Your MAGI is used to determine your eligibility for the following items:
Estimate your taxes here to get an idea of your gross income and adjusted gross income. You can then use this to better understand which credits and deductions you qualify to take, though eFile will determine this and calculate it all for you.
Use online tax filing software like eFile.com to handle these complicated calculations for you. eFile will claim all savings you are qualified for based on simple entries so you do not need extensive tax knowledge file your taxes online.
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