Modified adjusted gross income, or MAGI, is a measure used by the IRS to determine eligibility for certain deductions, credits (including the premium tax credits), or pensions.
Although the term is frequently used MAGI, some small business owners to understand what it is, how it is used, or how to calculate it. In this article, we will provide four amazingly simple tips to understand MAGI
Note -. This article is based on our free eBook, The owner of the Small Business Guide Modified adjusted gross income. to access the complete resource here.
What is MAGI?
MAGI is your adjusted gross income for deductions, then modified by adding specific deductions before. If you buy your own health insurance by the market, eligibility premium tax credits is based on your MAGI.
Tip # 1 - MAGI is different from AGI
MAGI is a different calculation of adjusted gross income (AGI). How? First, let's look at AGI.
To calculate AGI, you take your gross income and make adjustments by subtracting allowable deductions. The adjustments may include items such as contributions to IRAs, moving expenses, alimony paid, self-employment taxes and student loan interest . (Tip - There are lots of free AGI calculators available online.)
Once you have your AGI, you "Edit" to calculate MAGI. Specifically, Internal Revenue Code ((d) (2) (B)) indicates that MAGI is AGI increased by:
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Any amount excluded from gross income to Article 911 (foreign earned income and housing costs for qualified individuals).
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Any amount of interest received or accrued by the taxpayer during the tax year is exempt from tax.
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Any amount equal to the portion of social security benefits the taxpayer (as defined in Article 86 (d) ) that are not included in gross income under section 86 for the taxation year. (Any amount received by the taxpayer because of the right to a monthly benefit in Title II of the Social Security Act, or 1 railroad retirement benefit level.)
Here is a simple summary of MAGI:
chart Source - small business owner's Guide to modification gross income adjusted
Tip # 2 - most of AGI and MAGI are the same
for most people, MAGI is the same as AGI. Indeed, the added deductions for calculating MAGI do not apply to most; they include such things as foreign earned income, certain benefits of social security, and tax-exempt interest
Tip 3 -. Know your deductions available
now that you understand how MAGI is calculated and how AGI and MAGI are different, the next tip is to understand the available deductions. Know the available deductions will help you accurately calculate your MAGI. This is important when applying for tax credits on insurance premiums
Related - Quick Guide :. List of selected MAGI and settings
Tip - If you have questions about what deductions are available to you, consult your tax or accounting professional
Tip 4 -. Take advantage of available tax credits
The last tip is to take advantage of tax credits and deductions available to you.
For example, tax credits for health insurance premium offer significant discounts to many business owners (and staff) who are between 100% and 400 % of federal poverty level (FPL) , which does not have access to health insurance through work or government. This means a family of four earning up to $ 97,000 in 2015, or a person earning up to $ 47,080, can benefit from health insurance discounts.
Conclusion
Understanding MAGI can be simple. First, understand how to precisely calculate MAGI. Then take advantage of tax credits and deductions available to you.
Do you have a question about MAGI or tax credits for health insurance premium? Leave a comment below.
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