7 Experts Weigh In On the Future of Accounting
Every industry is impacted by the rise of technology and automation, and for many, that can be an...
Eligibility for certain income tax credits and education tax benefits are also based on MAGI, as is the eligibility for subsidized health insurance through the marketplaces under the Affordable Care Act, and for income-based Medicaid.
How MAGI is calculated is important to various income tax planning strategies. For example, modified adjusted gross income is not the same thing as total income or even adjusted gross income, or AGI. The higher a person’s MAGI, the fewer deductions they can take on IRA contributions. If too high, deductions can even reach zero. It’s important to note that IRA contribution may still be made at this point, but the taxpayer cannot deduct any of the contributions on their tax return.
To calculate MAGI, total up all income, including wages, salary, spousal support, interest, and capital gains. Deductions are then listed, totaled up, and subtracted from the income, which gives the adjusted gross income. Certain deductions such as passive rental property income, IRA contributions, foreign-earned income, rental losses, student loan interest, employer-paid adoption benefits, and savings bond interest are then added back in to calculate the MAGI.
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