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Income Tax Basics
Adjusted Gross Income (AGI)
Gross income minus above-the-line deductions.
AGI is your total income minus above-the-line deductions. It's a critical number because many tax benefits phase out based on AGI.
Calculating AGI
Wages + Interest + Dividends + Capital Gains + Other Income
− 401(k) / 403(b) contributions
− Traditional IRA deduction
− HSA contributions
− Student loan interest (up to $2,500)
− Self-employment tax deduction (50%)
− Charitable deduction ($300/$600 for non-itemizers)
= Adjusted Gross Income (AGI)
Why AGI Matters
AGI is used to determine eligibility for:
- IRA deductibility — phases out at ~$87K single / ~$230K MFJ
- Roth IRA contributions — phases out at ~$146K-$161K single
- Child Tax Credit — begins phasing out at $200K single / $400K MFJ
- Medical expense deduction — only expenses exceeding 7.5% of AGI
- SALT deduction phase-out — phases out above $500K MAGI
- Student loan interest deduction — phases out at ~$80K-$95K single
Sources
More in Income Tax Basics
Tax Brackets
Progressive rate tiers applied to taxable income.
Marginal Tax Rate
The tax rate on your next dollar of income.
Effective Tax Rate
Your average tax rate across all income.
Taxable Income
Income remaining after deductions, subject to tax.
Modified Adjusted Gross Income (MAGI)
AGI with certain deductions added back, used for eligibility tests.
Filing Status
Determines your bracket thresholds and standard deduction.
Marriage Penalty & Bonus
Tax impact of filing jointly vs. two singles.
Tax Cuts and Jobs Act (TCJA)
2017 law that lowered rates and doubled the standard deduction.