![]() ![]() Determining your eligibility for tax credits and deductions.If you live in a state that requires you pay state income taxes, your AGI will be used to determine your state taxes, too. Your AGI is part of the equation to calculate your taxable income and your federal tax liability. Determining your federal (and state) tax liability.There are several important ways your AGI is used: Specifically, your taxable income is calculated by subtracting any eligible “below-the-line” deductions from your AGI. Your taxable income is shown on line 15 of your 1040. Taxable income: Your AGI is then used to calculate your taxable income, or the portion of your income that will be taxed.Your total adjustments to income appear on line 10 of your 1040. In tax-speak, these adjustments are often called “above-the-line” deductions to differentiate them from the tax deductions most people are familiar with, which come “below-the-line” – in other words, after your AGI is calculated. Tax adjustments: Next, tax adjustments are subtracted from your gross income (effectively lowering your gross income). ![]() For the 2021 tax year, it appears on line 9 of your tax return, aka 1040. It’s the sum of everything you earn in a year, including wages, interest, investment gains, royalties, retirement distributions, rental income, alimony, and any other source of income not exempt from tax. Gross income: Your total income – the starting point for filing your taxes.When filing your taxes, your AGI is used to determine your taxable income. AGI is defined as your gross income minus whichever tax adjustments you qualify for (AGI = gross income - any eligible tax adjustments). ![]()
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