Your adjusted gross income plays a large role when calculating your income tax liability for the year. Generally, your AGI includes all your gross income, including wages, dividends, pensions, unemployment compensation and self-employment income, minus any adjustments. Adjustments reduce your income and lessen your tax burden. The Internal Revenue Service uses your AGI to calculate several tax credits and bases numerous deductions upon a percentage of your AGI. Although it is difficult to figure your exact AGI off an hourly wage, you can calculate an estimate of what your AGI should be at the end of the year.
Calculating Your Total Gross Income
You can estimate your adjusted gross income from an hourly wage by first calculating your total gross income. You can start by determining the estimated number of hours you work in a year, noting that there are 52 weeks in a year. For example, if you work 40 hours per week, your total annual hours is 2,080, or 40 hours times 52 weeks.
Multiply your total annual hours by your hourly wage to determine an estimate of your gross income. Using the previous example, if you work 2,080 hours per year and receive $20 per hour from your employer, your gross income is $41,600, or 2,080 times $20.
If you have any income other than your wages from your job, such as income from a small business, income from a second job or your spouse's income, and add that to the total. If you also expect to profit $125,000 from your small business, for example, add this amount to your gross income. Using the previous example, your total gross income is $166,600, or $41,600 plus $125,000.
Calculate Your Allowed Adjustments
Your total gross income can be reduced by certain adjustments to arrive at your adjusted gross income. Some of the adjustments that can be deducted from your gross income include:
- $250 for qualified educator expenses
- Up to $4,000 for tuition and fees
- Up to $2,500 for student loan interest
- Alimony paid during the tax year
Up until 2017, you could deduct moving expenses as an adjustment; however, the Tax Cuts & Jobs Act signed into law in December 2017 has eliminated that adjustment unless you are an active duty service member.
Once you've determined the adjustments you can take, add them together and subtract them from your gross income to determine your estimated AGI. Using the previous example, if your adjustments are $14,200, your AGI is $152,400, or $166,600 minus $14,200.
If you do not qualify for adjustments to your income, your estimated AGI is your total gross income.
- If you do not qualify for adjustments to your income, your estimated AGI is your total gross income.
- Internal Revenue Service: Definition of Adjusted Gross Income
- Internal Revenue Service: Publication 17 -- Adjustments to Income
- IRS: Changes for the 2017 Publication 17
- Society for Human Resources Management: President Signs Tax Bill Altering Employee Benefits
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
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