Do you know what your adjusted gross income is? If you don’t, don’t worry — you’re definitely in good company. A lot of people don’t really know what their adjusted gross income really is, and it means that they don’t have the ability to actually get the return that they’re entitled to.
When you file your taxes, you are not declaring that you’re paying taxes on all of your money. The truth is that you’re only paying taxes on a certain percentage of your money. This is to give you an incentive to keep working hard, because you will always be able to keep someone of your money. This is a better outcome than you might think, and it will give you a chance to really get the biggest return possible.
Simply put, your adjusted gross income (AGI) is your money after deductions and credits have been applied. For example, if you make $75,000 a year but you have $25,000 in deductions and credits, and then you are essentially paying taxes on $50,000 in income. The 50K tag is your AGI. AGI is important in calculating certain deductions and credits that you might be entitled to. Don’t let your gross income take you from calculating what your AGI is. A lot of people mix the two, and it ends up costing them several opportunities as time passes. You don’t want to end up in that zone if you can help it.
When you sit down to do your taxes, it’s important to make sure that you have all of the information you need to properly calculate your AGI. Do you really want to run the risk of not getting this amount calculated properly and missing out on deductions that properly belonged to you? Of course not. This is where keeping your receipts is definitely a good thing. For example, you might not realize that you can deduct certain charitable goods, sometimes even without itemizing your deductions.
The goal here is to make sure that you don’t just settle for whatever AGI seems reasonable because you’re scared that you’re going to be audited. The truth is that a very small number of returns are actually audited. In addition, just because you’re audited doesn’t necessarily mean that you’re going to have to pay thousands and thousands of dollars. There are cases where the IRS will review your return, ask you to make changes, and that’s that. Or they will require you to send in extra documentation. These are not times where you should panic and not do anything. That would imply that you’re guilty, and the IRS would then really make sure that you get hit with some friends and penalties. It’s not an automatic process, and it’s one that takes a lot longer than you might think.
If you think it’s straightforward to calculate your AGI like this, then you would definitely be right. However, simple doesn’t mean that it’s not important, so don’t forget to calculate your AGI yourself!