With all the stimulus packages that have been passed left and right, everyone has gotten confused with the definition of Adjusted Gross Income or AGI. In order to qualify for many stimulus perks, your AGI, not the salary or after-tax take-home income, must be below certain limits. To complicate matters a bit further, our government has based your qualification for The Worker, Home Ownership, and Business Assistance Act of 2009, and this is the one which gives the home buyer tax credit, on something called Modified Adjusted Gross Income or MAGI. The ever confusing world of income taxes tries to make you miserable and guide you to the eager hands of accountants and financial planners. But things are not that bad.

Your Adjusted Gross Income is the total income for a year minus certain deductions and before the itemized deductions from Schedule A or personal exemptions are subtracted. It does include gains, losses and expenses from 6 other IRS forms as well Schedules B, C or C-EZ, D, E, F and SE. Now that you are confused even more, it is worth to mention that on Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. To be exact, it appears on lines 37 and 38 on Form 1040, and on lines 21 and 22 on Form 1040A. Form 1040-EZ shows AGI on line 4.

So to make it simple, Adjusted Gross Income takes into account pretty much everything including,
– wages
– salaries
– tips
– taxable interest
– ordinary dividends
– taxable refunds, credits, or offsets of state and local income taxes
– alimony received
– business income or loss
– capital gains or losses
– other gains or losses
– taxable IRA distributions
– taxable pensions and annuities
– rental real estate
– royalties
– farm income or losses
– unemployment compensation
– taxable social security benefits
– and other income
minus
– specific deductions including educator expenses
– the IRA deduction
– student loan interest deduction
– tuition and fees deduction
– Archer MSA deduction
– moving expenses
– one-half of self-employment tax
– self-employed health insurance deduction
– self-employed SEP, SIMPLE, and qualified plans
– penalty on early withdrawal of savings
– alimony paid by you

To determine Modified Adjusted Gross Income you need to tweak the numbers still a bit more. According to IRS, MAGI is Adjusted Gross Income without the following,
– any passive loss or passive income, or
– any rental losses (whether or not allowed by IRC § 469(c)(7)), or
– IRA, taxable social security or
– one-half of self-employment tax (IRC § 469(i)(3)(E)) or
– exclusion under 137 for adoption expenses or
– student loan interest
– exclusion for income from US savings bonds (to pay higher education tuition and fees)
– qualified tuition expenses (tax years 2002 and later)
– tuition and fees deduction
– any overall loss from a PTP (publicly traded partnership)

Modified Adjusted Gross Income is also used to qualify for Roth IRA contribution purposes. The good news are, Modified AGI limits for Roth IRA contributions increased in 2009. In a nutshell, you can contribute to a Roth IRA if your MAGI is less than
– $169,000 for married filing jointly or qualifying widow/widower
– $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year
– $10,000 for married filing separately and you lived with your spouse at any time during the year
Speaking of Roth IRA, take a look at Roth IRA conversion in 2010, rules, income limit, eligibility.

Similar Posts:

  • Share/Bookmark