Financial Planning

How Do I Determine My Adjusted Gross Income?

The money you make each year before taxes is considered your adjusted gross income. The number used when filing income tax, get a quick overview on how to calculate.

Determining your adjusted gross income

In prior articles, we've discussed the difference between your gross income versus your adjusted gross income. However, if you're new to the topic, you'll need to know that your gross income refers to the money you make each year before taxes are withheld (and other deductions are taken), and your adjusted gross income, is the amount you make each year after specific deductions.

Calculating your adjusted gross income

If you're a salaried employee, your salary probably constitutes the majority (but not the total) of your gross income (unless you have a side business or other employment ventures to account for). If you receive an hourly wage, you'll have to calculate your gross income by multiplying the amount you're paid hourly by the number of hours you work each week. Then, multiply that figure by four (the number of weeks in a month) to calculate your monthly earnings. Take that product and multiply it by twelve (the number of months in a year) to calculate your gross income for the year.

Be sure to keep careful track of any tips and/or bonuses, as they too count as part of your gross income, as do alimony payments, unemployment compensation, or taxable Social Security benefits. If you have other investments, be aware that business revenue, taxable interest, rental real estate royalties, and any other income not listed here are also part of your gross annual income.

As of 2014, if you are under 65 and your annual gross income (NOT your gross adjusted income) is $10,150 or more, you'll be required to file a tax return. If you're over 65, you will be required to file if your annual gross income is $11,700 or more.1 Be aware that those amounts are subject to change with each new tax year. If you need help determining whether you should file, you can visit the IRS website and take a short survey.

Once you've determined if you need to file a tax return, it's time to calculate your adjusted gross income. This is an important figure to know when filing your taxes because it is your adjusted gross income and NOT your annual gross income that determines your full tax liability. Your adjusted gross income is determined by taking your annual gross income and subtracting the following items (as they appear on a standard 1040 tax form):

  • Educator expenses
  • Certain business expenses of reservists, performing artists, and fee-basis
  • government officials*
  • Health savings account deduction*
  • Moving expenses*
  • Deductible part of self-employment tax
  • Self-employed SEP, SIMPLE, and qualified plans
  • Self-employed health insurance deduction
  • Penalty on early withdrawal of savings
  • Alimony paid
  • IRA deduction
  • Student loan interest deduction
  • Tuition and fees*
  • Domestic production activities deduction*

*Attachment of appropriate forms required

An experienced tax professional can help walk you through the finer points of these itemizations, as well as answer any tax related questions or concerns.

If you'd like to learn more about specific tax credits for families or taxes and your Social Security benefits, visit the Protective Learning Center.

1. https://www.irs.gov/publications/p554/ch01.htmlA

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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Know Your Adjusted Gross Income

Your adjusted gross income is an important figure to know when filing your taxes because it determines your full tax liability. This article is a high level overview of how you can better determine your adjusted gross income and is meant to provide general information only. It is not meant to offer tax or tax related advice. For more information, visit the Protective Life Learning Center.

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