Modified Adjusted Gross Income Definition – MAGI
The modified adjusted gross income (abbreviated as MAGI) is for figuring out eligibility for certain deductions and credits. It’s basically like calculating adjusted gross income but with fewer steps.
The same as adjusted gross income, you’ll calculate your modified adjusted gross income by filling out Schedule 1, Additional Income and Adjustments to Income. The only difference between AGI and MAGI is that certain deductions are off for modified adjusted gross income.
When calculating modified adjusted gross income, come up with your gross income first, then you can proceed with the MAGI. You first need to calculate gross income. Do this by adding the total income earned during the tax year such as from wages, investments, interests, real estate rentals, etc. Then, fill out Schedule 1 and complete the form. You will now have your adjusted gross income.
As for the final step of calculating modified adjusted gross income, add back the following deductions. In other words, take out the below deductions and you’ll be left with your MAGI.
- IRA deduction
- Taxable Socia Security payments deduction
- Excluded foreign income
- Exclusion for adoption expenses
- Passive income or loss
- Partnership losses
- Rental property losses
- EE savings bonds used for paying higher education expenses
Your MAGI is important because it determines how much you can deduct off of your taxable income for certain deductions such as the IRA deduction. Though MAGI is important, the IRA deduction also depends on whether or not you’re covered by a retirement plan at work or your spouse.
