When you file your taxes, you want to make sure you're getting the largest refund you’re legally entitled to receive. Your adjusted gross income definition is your total income reduced by the tax deductions that the tax code classifies as adjustments to income. Even though the IRS is planning to revise Form 1040, the definition stays the same. Knowing which tax deductions can help you lower your adjusted gross income can help you make strategic financial decisions during the year to increase your tax refund when you file your return.
Claiming certain deductions, known as adjustments to income, allows you to lower your adjusted gross income on your taxes.
Reduce AGI with Adjustments to Income
When you file your tax return, you can reduce your total taxable income with adjustments to income. These are deductions that are taken into account before your adjusted gross income is determined, and you can claim them without forgoing your standard deduction. For example, many people can also increase tax deductions with an IRA because contributions to traditional IRAs may be deductible as an adjustment to income. Other adjustments to income for which you might be eligible include moving expenses, alimony paid, student loan interest, tuition, school fees and educator expenses.
Restrictions on Deduction Qualifications
Most of the adjustments to income have specific qualifications that you need to meet before you can claim them on your taxes. For example, you can’t deduct your traditional IRA contributions if you or your spouse is eligible to contribute to an employer-sponsored retirement plan and your income exceeds the annual limits for your filing status. Similarly, you can’t claim student loan interest if you file your taxes as married filing separate or if your income is too high.
Moving Expenses Eliminated in 2018
Beginning in the 2018 tax year, the moving expenses adjustment to income has been eliminated. As a result, you won’t be able to use moving costs to reduce your adjusted gross income on your tax return. However, the moving expenses deduction is scheduled to come back into existence starting in the 2026 tax year.
Tuition and Fees Renewed for 2017
At the end of the calendar year 2017, the tuition and fees adjustment to income had expired and hadn’t been removed. However, the Bipartisan Budget Act, which went into effect in February 2018, renewed the extension for the 2017 tax year. However, the extension is only for the 2017 tax year – the deduction has not been extended to 2018. But it’s possible the deduction will be extended before 2018 tax returns need to be filed.
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