How to Calculate Your Modified Adjusted Gross Income

How to Calculate Your Modified Adjusted Gross Income

Your modified adjusted gross revenue, also known as your “MAGI,” is included in calculations to restrict, cut back, or section out sure tax breaks you would possibly qualify for. It’s your adjusted gross revenue or AGI with sure deductions added again in. There’s no single total definition of a MAGI, as a result of your adjusted gross revenue may be modified in several methods for various functions.

It’s your adjusted gross revenue plus sure exclusions, for functions of calculating the Adoption Tax Credit, adoption help applications, the American Opportunity Tax Credit, contributions to Coverdell Education Savings Accounts, and the Lifetime Learning Credit:

  • Any foreign-earned revenue exclusion you claimed
  • Any housing exclusion you claimed
  • Any housing deduction you might need claimed

You should additionally add again in any revenue you excluded from taxation that you just acquired from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico.

The Adoption Tax Credit and Assistance Programs

The quantity of adoption-related bills that may be refunded via the Adoption Tax Credit is restricted or phased out in case your MAGI is above sure thresholds. The MAGI phaseout for the Adoption Tax Credit begins at $214,520 within the 2020 tax yr—the tax return you’d file in 2021—and ends at $254,520.

Your MAGI may restrict the quantity of adoption-related bills you are eligible to assert for tax-free reimbursement from an employer help program. The similar MAGI threshold limits which are used for the adoption credit are used for employer-provided adoption-assistance applications.

The worth of those tax breaks begins lowering on the first threshold, and taxpayers with MAGIs over the higher restrict aren’t eligible for these advantages in any respect.

Your MAGI seems on line 7 of Form 8839, which you will need to full and submit to assert certified adoption bills. It additionally exhibits up on line 23 of Form 8839. It’s used right here to restrict the quantity of employer-provided advantages for adoption help reimbursement that may be excluded from federal revenue tax. 

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The American Opportunity Tax Credit

Your MAGI, for functions of claiming the American Opportunity Credit, seems on line 3 of Form 8863, the tax type you will need to file to calculate and declare the credit. Again, the quantity of the credit is restricted till it is finally phased out completely in case your MAGI exceeds sure thresholds.

The 2020 MAGI phase-outs are $80,000 or much less to assert the complete credit for single taxpayers, and $160,000 or much less for individuals who are married and file joint returns. You cannot declare these tax breaks in any respect in case your MAGI is over $90,000, or $180,000 for joint filers. 

Coverdell Education Savings Accounts

Your MAGI additionally limits the quantity you possibly can contribute to a Coverdell Education Savings Account on behalf of one other particular person. Calculations for these accounts are made utilizing Worksheet 7-1, “MAGI for a Coverdell ESA,” present in IRS Publication 970. Again, the quantity you possibly can contribute tax-free is lowered or phased out in case your MAGI is over sure thresholds.

The threshold quantities for Coverdell Education Savings Accounts within the 2020 tax yr are $95,000 to $110,000, growing to $190,000 to $220,000 in case you’re married and submitting a joint return.

The Lifetime Learning Credit

You can calculate your MAGI for the Lifetime Learning Credit through the use of Worksheet 3-1 in IRS Publication 970. Again, in case your MAGI is over a sure threshold, the quantity of the credit you possibly can declare is lowered or phased out—how a lot depends upon your MAGI and your submitting standing. The threshold quantities range every year, however the quantity of the discount may be calculated on IRS Form 8863. 

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Student Loan Interest Tax Deduction

Your MAGI is your AGI with the next modifications for functions of claiming the student loan curiosity tax deduction:

  • Less your deduction for student loan curiosity
  • Less any deduction you took for tuition and costs
  • Less any deduction for home manufacturing actions
  • Plus any foreign-earned revenue exclusion, housing exclusion, and housing deduction
  • Plus any exclusion of revenue from American Samoa, Guam, the Northern Mariana Islands, or Puerto Rico

Your MAGI for this deduction may be calculated through the use of Worksheet 4-1 present in IRS Publication 970. The threshold quantities range by yr and by submitting standing. The limits for the student loan curiosity deduction for tax yr 2020 are $85,000 for single filers and $170,000 for joint filers. Those who use the married-filing-separately standing aren’t eligible to deduct student loan curiosity in any respect.

Deducting IRA Contributions

The calculation of your MAGI can also be totally different and extra difficult for functions of figuring out your allowable tax deduction for contributions you’ve got made to your IRA. It’s your adjusted gross revenue earlier than you are taking the IRA deduction for this tax break, and after together with any taxable Social Security advantages and making use of the passive exercise loss limitations to passive revenue. The following modifications additionally apply:

  • Add again any exclusion for financial savings bond curiosity
  • Add again adoption help excluded from revenue
  • Add again deduction for home manufacturing actions 
  • Add again any deduction for curiosity paid on student loans
  • Add again any deduction for tuition and costs
  • Add again any foreign-earned revenue exclusion, housing exclusion, and housing deduction

Your MAGI limits the quantity you possibly can deduct for contributions made to a standard IRA in case you’re coated by a retirement plan via an employer. It may be calculated through the use of Worksheet 1-1, “Figuring Your Modified AGI,” which may be present in IRS Publication 590-A.

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The MAGI threshold quantities for this deduction range by yr and submitting standing, so that you’re greatest off calculating it through the use of the worksheet. 

Roth Individual Retirement Account (IRA) Eligibility

Depending on your MAGI, you would possibly or won’t be eligible to fund a Roth Individual Retirement Account (IRA). Your MAGI is your AGI with the next modifications for functions of eligibility:

  • Less revenue from a Roth conversion
  • Plus any deduction for Traditional IRA contribution
  • Plus any exclusion for financial savings bond curiosity
  • Plus any adoption help excluded from revenue
  • Plus any deduction for home manufacturing actions
  • Plus any deduction for curiosity paid on student loans
  • Plus any deduction for tuition and costs
  • Plus any foreign-earned revenue exclusion, housing exclusion, and housing deduction

Your MAGI is used to find out whether or not you possibly can—and the way a lot you possibly can—contribute to a Roth IRA. The threshold quantities range by yr and submitting standing.

Roth IRA reductions start at MAGIs of $124,000 for the 2020 tax yr for single filers, they usually’re eradicated completely for these with MAGIs of $139,000 or extra. Reductions start at $196,000 for married taxpayers who file joint returns, they usually’re eradicated at MAGIs of $206,000 for these filers.

NOTE: Tax legal guidelines change periodically, and the above info won’t replicate the newest adjustments. Please seek the advice of with a tax skilled for essentially the most up-to-date recommendation. The info contained on this article shouldn’t be meant as tax recommendation, and it’s not an alternative to tax recommendation.

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