If you are new to the field of tax, learning about the jargon is a headache. But if you educate yourself well, it will pay off when you have a solid grip on your finances. One term that confuses the most is Adjusted Gross Income.
In this blog, we shall walk you through what it means and how to calculate agi from w2. In case you are looking to create a paystub you can visit Online Paystub.
What is AGI?
AGI is your total gross income; subtract a few selected deductions. It’s the first step towards finding your tax liability. AGI is used to determine other deductions. For example, you can only deduct medical expenses which exceed a small portion of your AGI.This figure changes from year to year.
In many states, your AGI is used to decide your state taxes. For these reasons, it is vital to calculate AGI in your tax preparation.
AGI v/s Taxable Income
AGI and Taxable Income are commonly mistaken. Taxable income is AGI minus personal exemptions and the standard deduction. This is the final figure used to calculate your tax cost.
How To Calculate AGI From W-2?
Calculating AGI begins with your W-2 form. Start with Box-1 on your W2. This is your total income from the employer. If you work under multiple employers, add Box 1 on every W-2 together. The next stop is to add all of your other forms of income, including:
- Taxable interests from your bank accounts.
- Capital gains.
- Dividends paid on your stocks.
- Earnings that you have earned through your own business.
- Royalties received.
- Subsidies.
- Contributions made towards selected types of retirement accounts.
- Alimony amount received.
- Any taxable amount from pension, retirement plans, and social security.
Once you have received your total income, calculate AGI by subtracting selected items. These items can change from year to year, but most of them include:
- Capital losses from selling assets.
- Half of any self-employment tax you paid.
- Alimony Payments.
- Contribution to traditional IRAs.
- Tuition costs.
- Student loan interest.
- Moving expenses.
- Any early withdrawal penalties from the savings account.
How to Find AGI on W-2?
You cannot find AGI on W-2. You will have to calculate the adjusted gross income on the Form 1040. Your AGI includes amounts from your W-2.
Reducing Your AGI
If you want to lower your tax liability, it will benefit you to reduce your AGI. This is true, for example, if you have high medical expenses that you want to deduct. A tax professional can help you in lowering your AGI. This involves contributing more towards several retirement accounts.
Conclusion
The first step towards organized finance is knowing your figures. Now you know how to how to calculate agi from w2. Begin early and keep track of periodic eye on your year-end statistics. If you are looking for a W-2 form generator you should check out Online Paystub.
