When it’s time to calculate your tax bill, knowing your adjusted gross income (AGI) is a crucial first step. If you file your tax return online (or have your tax preparer do it), you’ll need your AGI from the previous tax year to prove your identity to the IRS. In addition, your AGI determines your eligibility for a range of tax breaks that could lower your tax bill.
Calculate adjusted gross income
Your adjusted gross income is made up of income from various sources, including your wages, self-employment income, interest from bank accounts, capital gains, dividends, rental income, and retirement plan distributions, minus adjustments, including interest on student loan payments as well as contributions to traditional IRAs and 401(k)s and health savings accounts. You can find your AGI on line 11 of your 1040 tax form.
Several money-saving tax credits, including the child and dependent care credit, as well as credits for older adults and those who are permanently disabled, are available to taxpayers whose AGI falls within certain thresholds. Your modified adjusted gross income, discussed below, is also tied to a range of tax breaks. For that reason, taking steps to keep your AGI below those limits could benefit you, now and in the future.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Reducing your AGI
Contributions to a traditional IRA will reduce your AGI on a dollar-for-dollar basis, and there’s still time to use traditional IRA contributions to reduce your 2025 AGI. If you’re not enrolled in a workplace retirement plan, you can deduct a contribution of up to $7,000, or $8,000 if you were 50 or older, for 2025. You have until April 15, 2026, to make your 2025 contribution.
If you have a company retirement plan but earn less than a certain amount, you may also qualify to deduct all or part of your IRA contributions.
- For 2025, this deduction phases out for single taxpayers with AGI between $79,000 and $89,000 and for married couples who file jointly with AGI between $126,000 and $146,000.
- If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution, as long as the couple’s joint AGI doesn’t exceed $236,000.
- A partial deduction is available if the couple’s AGI is between $236,000 and $246,000.
Contributing to a health savings account will also reduce your AGI, and you have until April 15 to set up and fund a health savings account for 2025. To qualify, you must have had an HSA-eligible insurance policy in 2025 that started no later than December 1. The policy must have had a deductible of at least $1,650 for individual coverage or $3,300 for family coverage.
You can contribute up to $4,300 to a 2025 HSA if you had single coverage or $8,550 if you had family coverage. You can contribute an additional $1,000 if you were 55 or older in 2025.
It’s too late to contribute to your 2024 401(k), but contributions that you make this year will lower your 2025 AGI. You can stash up to $23,500 to your 401(k) or other employer-provided retirement plan in 2025, plus $7,500 in catch-up contributions if you’re 50 or older.
AGI vs. MAGI
A long list of other tax breaks, including the child tax credit, the American Opportunity Credit and the adoption credit, are tied to your modified adjusted gross income (MAGI). Your MAGI also determines your eligibility to contribute to a Roth IRA.
MAGI is your AGI with a handful of deductions added back, including student loan interest, tax-exempt Social Security payments and excluded interest on savings bonds. Since these “add backs” are uncommon, many taxpayers’ AGI and MAGI are the same.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
-
Dow Soars 600 Points as Trump Retreats: Stock Market TodayAnother up and down day ends on high notes for investors, traders, speculators and Greenland.
-
12 Tax Strategies Every Self-Employed Worker Needs in 2026Your Business Navigating the seas of self-employment can be rough. We've got answers to common questions so you can have smoother sailing.
-
7 Hybrid Adviser Services, ReviewedThese hybrid adviser services aim for a sweet spot that combines digital investing with a human touch.
-
12 Tax Strategies Every Self-Employed Worker Needs in 2026
Your Business Navigating the seas of self-employment can be rough. We've got answers to common questions so you can have smoother sailing.
-
New California Wealth Tax for 2026? Here's What's Happening NowState Taxes California has considered taxing wealth before, but the latest proposal seems to be different.
-
A Free Tax Filing Option Has Disappeared for 2026: Here's What That Means for YouTax Filing Tax season officially opens on January 26. But you'll have one less way to submit your tax return for free. Here's what you need to know.
-
Georgia Tax Rebate And Income Elimination? What 2026 Could Mean For YouState Tax We break down how lawmakers aim to axe the state income tax and how much you could get in a Georgia tax refund in 2026.
-
When Do W-2s Arrive? 2026 Deadline and 'Big Beautiful Bill' ChangesTax Deadlines Mark your calendar: Feb 2 is the big W-2 release date. Here’s the delivery scoop and what the Trump tax changes might mean for your taxes.
-
Are You Afraid of an IRS Audit? 8 Ways to Beat Tax Audit AnxietyTax Season Tax audit anxiety is like a wild beast. Here’s how you can help tame it.
-
States That Tax Social Security Benefits in 2026Retirement Tax Not all retirees who live in states that tax Social Security benefits have to pay state income taxes. Will your benefits be taxed?
-
10 Cheapest Places to Live in WashingtonProperty Tax Is Washington your go-to ski destination? These counties combine no income tax with the lowest property tax bills in the state.
