Determine Adjusted Gross Income (AGI)

Your adjusted gross income (AGI) is your total income from all sources, minus allowable deductions. Find your W-2 and 1099 forms to calculate your total income. Then go through each deduction and see if you can claim it. If you need help, contact a tax professional.

Steps

Adding Up All Income

1. Total your salary and wages. You should receive a W-2 form that tells you how much you have made in salary, wages, and tips. This amount will be reported in box 1. However, if you earned less than $2,000, your employer does not need to give you a W-2, but you still must report your income.
   • If you plan to file with your spouse, then you need to add their income in with yours as well.
2. Add your business income. Report business income if you operated a business or practiced as a sole proprietor. Independent contractors should receive a 1099-MISC from those you do business with. You need to complete Schedule C or C-EZ to calculate your business income.
   • However, not everyone who hires you needs to send a 1099. For example, you might not receive a 1099-MISC if you were paid less than $600 in the year.
   • Accordingly, go through your business records to determine your total income. You must report income even if it wasn’t reported to the IRS on a 1099 form.
3. Calculate your investment income. This income is reported on a variety of 1099 forms, which you should receive in the mail. Also go through your records to see if you received any of the following:
   • Ordinary dividends. These should be reported on a Form 1099-DIV. The amount is shown in Box 1a.
   • Qualified dividends. Generally, these are reported in box 1b of Form 1099-DIV.
   • Capital gains. If you sold a stock, bond, or other capital asset, you must claim the capital gains as income. Check box 2a of Form 1099-DIV. Read the instructions to Form 1040 to see if you qualify for an exception.
4. Add up other income. You must report all income to the IRS. Accordingly, look for other sources of income, such as the following:
   • Taxable interest. You should have received a Form 1099-INT or a Form 1099-OID with the amount.
   • Alimony. Review your records to properly calculate the amount of alimony you have received.
   • Unemployment compensation. Look in box 1 on Form 1099-G.
   • Social Security benefits. You’ll receive Form SSA-1099, with the total benefits paid listed in box 3.
   • Distributions from an IRA, pension, or annuity. You should receive Form 1099-R. Look in box 1. You may qualify for an exception, so read the instructions to form 1040.
   • Other income. You need to report other sources of income, including prizes, lotteries, rental income, jury duty pay, etc.
5. Calculate your total income. After identifying all income sources, you need to add them together. Report the total amount on line 22 of Form 1040. For example, you might have the following:
   • Wages: $21,450
   • Qualified dividends: $3,500
   • Unemployment compensation: $1,250
   • Total income: $26,200

Subtracting Deductions and Expenses

1. Subtract qualifying educator’s expenses. A qualified educator can deduct up to $250 of expenses. You qualify if you taught K-12, or were an instructor, counselor, principal, or aide who worked at least 900 hours.
2. Deduct contributions to an HSA. You might be able to deduct your contributions to a health savings account. However, you can’t deduct rollover amounts or contributions from your employer. See Form 8889 for more information.
3. Claim a deduction for moving expenses. In certain situations, you can deduct moving expenses if you moved in connection with a job or business. However, you can only take the deduction if the new job is farther away from your home than your old job. See the instructions to Form 1040 for more information.
4. Deduct part of your self-employment tax. Self-employed individuals who owe self-employment tax can typically deduct half of the amount. Complete Schedule SE to find out the precise amount you can deduct.
5. Subtract contributions to retirement plans. The amount you subtract will depend on the plan you contributed to. Consider the following:
   • Self-employed plans. You might be able to deduct the amount of contributions to a Self-Employed SEP, SIMPLE, or other qualified plan.
   • Traditional IRA. You can generally deduct your contributions to a traditional IRA if you had earned income for the year. You may need to complete the IRA Deduction Worksheet to see if you qualify.
6. Deduct for self-employed health insurance. You can deduct the amount you paid in health insurance for you, your spouse, and dependents. You can also deduct for your children under age 27. However, the plan must be established under your business.
7. Claim a deduction for alimony contributions. If you paid alimony to a former spouse under a divorce decree or marital separation agreement, you might be able to take this deduction.
   • Alimony doesn’t include child support or noncash property settlements.
   • It also doesn’t include use of your property. For example, your marital separation agreement might let your ex-spouse stay in your home while you continue to pay the mortgage, taxes, insurance, and utilities. Unfortunately, these expenses are not deductible as alimony.
8. Deduct student loan interest. If you paid interest on a qualified student loan, then you can deduct the amount of interest paid. You need to meet certain requirements:
   • You can’t file married filing separately. Any other filing status is acceptable.
   • You can’t be claimed as a dependent on anyone else’s tax return.
   • Your modified adjusted gross income must be less than $80,000 if you are single or $160,000 if you are married filing jointly. Complete a worksheet included in the instructions to calculate.
   • You must have taken the loan out for yourself, your spouse, or a dependent.
9. Claim a deduction for tuition and fees. You can deduct qualified tuition and fees paid for yourself, your spouse, or a dependent. You should complete Form 8917 to check whether you can claim this deduction.
10. Identify other deductions. You might qualify for other deductions if you are a reservist, performing artist, or fee-basis government official. Check the instructions for Form 1040 to see if you qualify.
    • You might also be able to deduct any penalty you were charged for an early withdrawal of savings. This amount should be reported on Form 1099-INT or Form 1099-OID.
11. Add up your deductions. Calculate all of your deductions and put the total on line 36 of Form 1040. For example, you may have the following amounts to deduct:
    • Student loan interest: $4,800
    • Contribution to IRA: $3,000
    • Total deductions: $7,800
12. Subtract your deductions from your total income. In the example above, your total income is $26,200 and your deductions are $7,800. This gives you an adjusted gross income of $18,400. On Form 1040, you will list this amount on line 37.
    • Your AGI is not your taxable income. You will calculate your taxable income by deducting exemptions for dependents and subtracting either your standard deduction or your itemized deductions.

Getting Tax Help

1. Find a VITA volunteer. If you make $54,000 or less, you can get help with your taxes from the Volunteer Income Tax Assistance program. VITA programs are usually located at libraries, shopping malls, schools, and neighborhood centers.
   • Call 1-800-906-9887 to find the nearest program.
   • Alternately, you can visit https://irs.treasury.gov/freetaxprep/ and enter your location.
2. Look for assistance for the elderly. The Tax Counseling for the Elderly (TCE) program offers free tax help for those who are 60 or older. You can find the nearest program by calling 1-888-227-7669.
3. Hire a tax professional. You can find a qualified tax professional by visiting one of the established national chains, such as H&R Block. You can also hire an enrolled agent by visiting the website for the National Association of Enrolled Agents.
   • If you want to hire a certified public accountant, contact your state’s CPA society. However, check whether the CPA specializes in preparing individual tax returns.

Tips

• Also check last year’s AGI if your income and deductions haven’t changed.

Sources and Citations

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