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.
Sign up for Kiplinger’s Free E-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 2023 AGI. If you’re not enrolled in a workplace retirement plan, you can deduct a contribution of up to $6,500, or $7,500 if you were 50 or older, for 2023. You have until April 15, 2024, to make your 2023 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 2023, this deduction phases out for single taxpayers with AGI between $73,000 and $83,000 and for married couples who file jointly with AGI between $116,000 and $136,000.
- 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 $218,000.
- A partial deduction is available if the couple’s AGI is between $218,000 and $228,000.
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 2023. To qualify, you must have had an HSA-eligible insurance policy in 2023 that started no later than December 1. The policy must have had a deductible of at least $1,500 for individual coverage or $3,000 for family coverage.
You can contribute up to $3,850 to a 2023 HSA if you had single coverage or $7,750 if you had family coverage. You can contribute an additional $1,000 if you were 55 or older in 2023.
It’s too late to contribute to your 2023 401(k), but contributions that you make this year will lower your 2024 AGI. You can stash up to $23,000 to your 401(k) or other employer-provided retirement plan in 2024, 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
-
What to Expect in the Rest of This Year's Job Market — and Advice for Job SeekersEspecially in the most competitive fields, job seekers will need to strategize to stand out.
-
Five Tips For Estate Planning in 2025We're almost halfway through the year. Is your estate in order? If not, here are some tips to get it done in 2025.
-
Ten Cheapest Places To Live in FloridaProperty Tax Make your Florida vacation spot daily living — these counties have the lowest property tax bills in the state.
-
Missed Tax Day? Nearly One Million Taxpayers Still Can File and Claim Valuable Tax RefundsTax Refunds As many as one million taxpayers could be missing out on a significant tax refund.
-
Which Generation Pays the Most Tax in the US?Tax Burden Polls show that most people feel like taxes are unfair. But which age group bears the brunt of the tax burden in the United States?
-
Tax Day 2025: Don’t Miss These Freebies, Food Deals and DiscountsTax Day You can score some sweet deals on April 15 in some select restaurants like Burger King, Shake Shack, and more.
-
Tax Time: Does Your Kid Influencer Owe Taxes?State Tax Some minors are making big money on social media. Here’s how to know if they need to file taxes.
-
Trump Plans to Terminate IRS Direct File programTax Filing The IRS Direct File program was piloted last year in 12 states and has since expanded to 25. But will it last under the Trump administration?
-
How Caregivers for Adults Can Save on Taxes in 2025Tax Breaks Caring for your parent or spouse can be stressful, but the IRS offers tax breaks for qualifying taxpayers. Here they are.
-
U.S. Treasury to Eliminate Paper Checks: What It Means for Tax Refunds, Social Security
Treasury President Trump signed an executive order forcing the federal government to phase out paper check disbursements by the fall.
