What Is Adjusted Gross Income?
Summary
TLDRAsh from the 'Better Than Yesterday' blog explains the concept of Adjusted Gross Income (AGI), emphasizing its importance in tax calculations. AGI includes all income sources, not just salary, and requires adjustments, known as 'above the line deductions', to reduce the gross income before applying itemized or standard deductions. Being aware of these deductions can save on taxes, and even with a tax preparer, it's crucial for individuals to understand and provide information on these adjustments to ensure an accurate tax return.
Takeaways
- 📘 Adjusted Gross Income (AGI) is a term that refers to your total income minus certain adjustments.
- 🔍 AGI is calculated by tax preparers because it includes various deductions that are specific to the tax code.
- 💼 Gross income is the total money earned in a year, including all sources, not just a regular paycheck.
- 📋 The script lists potential income sources that should be considered when calculating gross income.
- 🔄 To find AGI, you subtract total adjustments from the total gross income, which is a process known as 'above the line deductions'.
- 📉 Adjustments reduce your income before applying itemized or standard deductions, which can lower your taxable income.
- 💡 Being aware of these adjustments can help save on taxes, as they can be overlooked if not mentioned by the taxpayer.
- 📚 It's beneficial for taxpayers to be educated about the adjustments that impact their tax return, even if they have a tax preparer.
- 🤔 A tax preparer relies on the information provided by the taxpayer to prepare the return, so missing information can lead to missed deductions.
- 📝 The script encourages following along for more tax tips to stay educated during the tax season.
Q & A
What is Adjusted Gross Income (AGI)?
-Adjusted Gross Income, or AGI, is a measure of an individual's total income minus certain adjustments. It is used to calculate an individual's tax liability and is an important figure in tax preparation.
Why is it necessary to get AGI from a tax preparer instead of calculating it yourself?
-A tax preparer is knowledgeable about various deductions that can be included in the AGI calculation, which might be overlooked by an individual. They can ensure that all possible deductions are accounted for, potentially reducing your tax liability.
What is considered as part of an individual's gross income?
-Gross income includes all money earned throughout the tax year from various sources, not just a paycheck. This can include earnings from investments, rental properties, and other income streams.
What are 'above the line deductions' in the context of AGI?
-Above the line deductions are adjustments made to an individual's gross income before applying itemized or standard deductions. These deductions are used to calculate the adjusted gross income.
How is the AGI calculated?
-To calculate AGI, you subtract total adjustments from the total gross income. This formula is: AGI = Total Gross Income - Total Adjustments.
Why is it important to be aware of the adjustments that can be made to your income?
-Being aware of these adjustments can help save on taxes. Even with a tax preparer, it's beneficial to understand the deductions that affect your tax return, as they can only prepare your return with the information you provide.
What could happen if you don't provide information about adjustments to your tax preparer?
-If you do not provide information about possible adjustments, your tax preparer may miss out on these deductions, which could result in a higher tax liability than necessary.
What are some examples of potential income sources that should be included in gross income?
-Examples of potential income sources include wages, salaries, interest, dividends, rental income, capital gains, and any other forms of earnings received during the tax year.
What are some examples of potential adjustments that can reduce an individual's income for AGI calculation?
-Potential adjustments could include contributions to a traditional IRA, student loan interest, alimony payments, and certain educational expenses, among others.
How can staying educated on tax adjustments benefit an individual during tax season?
-Staying educated on tax adjustments allows an individual to be more proactive in managing their tax situation, potentially identifying deductions and credits that could reduce their overall tax bill.
Why is it beneficial to follow along for more tax tips during the tax season?
-Following along for more tax tips can help individuals stay informed about changes in tax laws, deductions, and strategies that could affect their tax return and potentially save them money.
Outlines
📊 Understanding Adjusted Gross Income (AGI)
Ash introduces the concept of Adjusted Gross Income (AGI), explaining its significance in tax calculations. The paragraph clarifies that AGI is not just the sum of one's income but includes various deductions that can reduce the total income before tax is calculated. The speaker emphasizes the importance of knowing one's gross income from all sources, not just the paycheck, and the necessity of making adjustments to this income to arrive at the AGI. The paragraph also mentions 'above the line deductions' which are applied before itemized or standard deductions, and stresses the importance of being aware of these adjustments to potentially save on taxes. The speaker encourages the audience to stay informed about tax adjustments that can affect their tax returns, even if they have a tax preparer.
Mindmap
Keywords
💡Adjusted Gross Income (AGI)
💡Tax Preparer
💡Gross Income
💡Tax Deductions
💡Above the Line Deductions
💡Itemized Deductions
💡Standard Deduction
💡Income Sources
💡Tax Return
💡Tax Tips
💡Tax Season
Highlights
Ash introduces the concept of Adjusted Gross Income (AGI) and its importance in tax preparation.
AGI is derived from gross income with certain deductions, not just a simple sum of tax forms.
Gross income includes all money earned during the tax year, including non-paycheck sources.
A list of potential income sources is provided to help understand what constitutes gross income.
Adjustments are necessary to reduce gross income to calculate AGI.
Adjustments are categorized as 'above the line deductions' because they are applied before itemized or standard deductions.
The formula for AGI is presented: total gross income minus total adjustments.
Being aware of adjustments can lead to tax savings, even with the help of a tax preparer.
The role of a tax preparer is to prepare returns based on the information provided by the taxpayer.
It's crucial for taxpayers to provide information about adjustments to avoid missing potential tax savings.
The blog encourages continuous education on tax adjustments to stay informed during the tax season.
The value of understanding AGI adjustments is emphasized for both individual and professional tax preparation.
The blog serves as a guide for taxpayers to navigate the complexities of tax deductions and AGI calculations.
Ash provides practical advice on how to ensure all eligible deductions are considered in tax returns.
The importance of accurate reporting of income and deductions for accurate AGI calculation is stressed.
The blog aims to empower taxpayers with knowledge to make informed decisions about their taxes.
Transcripts
hey everyone ash here with the better
than yesterday blog
you've all probably heard of the term
adjusted gross income
but what does that really mean
why do you have to get your agi from
your tax preparer rather than adding up
your tax forms
well that's because there's several tax
deductions that can be included in your
adjusted gross income calculation
when you think of your income your gross
income automatically pops in your head
and rightfully so
unless if you're a tax preparer
of course you do need your gross income
in order to calculate your adjusted
gross income
your gross income consists of all the
money that you made throughout the tax
year
and this also includes money that you
earn from other sources not just your
paycheck
here's a list of potential income
sources to include in your gross income
now that you have your total gross
income we need to make some adjustments
to reduce that income
hence adjusted gross income
check out this list of potential
adjustments to reduce your income
these adjustments are typically referred
to as above the line deductions since
the adjustments are applied before you
take your itemized or standard deduction
to reach your adjusted gross income you
take the total gross income minus your
total adjustments look at this example
being aware of these adjustments can
save you taxes
even if you have a tax preparer it is
beneficial to be educated on the
adjustments that impact your tax return
your tax preparer can only prepare your
return with information that you provide
therefore if you do not provide
information about adjustments these
adjustments may be missed
follow along for more tax tips to stay
educated this tax season
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