How to Calculate AGI for Tax Filing Purposes
Your adjusted gross income (AGI) is the total amount of income a taxpayer earns minus specific deductions which the IRS permits you to take against this income. When submitting a tax return using E-file this is what is used to digitally sign your return. Digitally signing is an IRS requirement, and only required when electronically transmitting your tax return. This is what is being used to help combat taxpayer fraud.
To find your AGI, first locate a copy of your previous tax return that was filed last year. In most cases, the form would have been either a 1040, 1040-SR or 1040NR, this will be notated at the top of the tax form. For instance, if a Form 1040, 1040-SR or 1040NR was filed for the tax year 2020, your AGI should be on line 11.
Calculating AGI gets you one step closer to figuring out your taxable income, tax rate, and tax liability.
Start with Your Income
Your AGI is more than just your wages from your current employment. It includes all of the income that you have from any source. This often includes:
- Taxable interest
- Dividend or investment income
- Alimony received
- Business or self-employment income (including farm income)
- Capital gain income (from selling assets or securities)
- IRA, pension, and annuity payouts
- Rental income
- Trust income
- Unemployment compensation
- Some Social Security benefits
- Income from partnerships or S corporations
You should assume that all of your income is taxable and that it must be reported on your income tax return. There are exceptions to this rule, but it generally applies to most types of income. Non-taxable income is not included in this calculation.
Determining Your Deductions
Your AGI calculation is adjusted income because it also accounts for certain tax deductions that you may be entitled to receive. Potential adjustments may include deductions for:
- Health savings account
- Moving expenses
- The deductible portion of self-employment tax
- IRA contribution
- Student loan interest
- Deductions for tuition and fees
- Educator expenses
- Alimony payments
- Self-employment health insurance plans
In addition, if you have a business, you may also be able to deduct other expenses (taxes, labor, etc) from the amount of income that you have received. There is a separate form called a Schedule C which is used to calculate business/self-employment income and deductions on an individual tax return.
These deductions can be subtracted from your total income and this amount represents your AGI calculation. Taxpayers can sometimes confuse which deductions are included before AGI is calculated and which after. For example, personal exemptions and the standard/itemized deductions are all taken after this is calculated.
Our software can be used to calculate AGI at tax time. Or you can use last year’s information to provide you with an estimate for next year.