How to Leverage Your Adjusted Gross Income for Bigger Tax Savings

 

Adjusted Gross Income (AGI): Your gross income, adjusted by payments like retirement contributions, student loan interest, health savings contributions, etc. (And, the IRS’s starting point for calculating how much you owe them every year).

I’m getting right to the point here, I realize. That’s because it’s a foundational part of filing your 2024 taxes. And, it’s my job to point you toward allllll the tax-smart opportunities (aka – credits and deductions that could make your wallet a little bit fuller).

How do you calculate your adjusted gross income?

Start by adding up all your income sources: Wages (check your W-2s or 1099s), tips, interest, capital gains, business income, retirement income, self-employment income, and anything else you can think of (I’ll spare you the exhaustive list – the IRS has already made one).

Then, from that total income, subtract any above-the-line deductions (again, the IRS's list, not mine):

Alimony payments (aka, payments to an ex-spouse)

Educator expenses up to 300 dollars (or 600 if your spouse shares your educating passion)

Certain business expenses of reservists, performing artists, and fee-basis government officials

Deductible Health Savings Account (HSA), IRA, and retirement contributions

Moving expenses if you’re military

Deductible self-employment taxes (50 percent of the self-employment tax you pay and health insurance premiums)

Student loan interest

Now you have your adjusted gross income — be mindful of special requirements for many of these categories when claiming the amounts. And remember: The smaller your AGI, the bigger the credits and deductions you’re eligible to claim on your return.

Stake your claims

With your calculated AGI in hand, you’ve got two options: Subtract either the standard deduction or itemized (“below-the-line”) deductions to determine your taxable income.

Charitable contributions are one of the big below-the-liners to consider. Though most people claim the standard deduction, if you itemize, charitable deductions are generally limited to 60 percent of your AGI.

Medical expenses apply here too, as long as they exceed 7.5 percent of your AGI.

You can also deduct up to 2.5k of student loan interest you’ve paid. It phases out at an AGI of 75–90k (single) or 150–180k (for married filing jointly).

Traditional IRA contributions may also be deductible if your AGI fits the bill: For 2025, the deduction phases out at 73–83k (single) or 116–136k (married filing jointly).

A low AGI could help you qualify for credits like…

The Child Tax Credit (worth up to 2k per child under 17). It begins phasing out at an AGI of 200k (single filers) or 400k (married filing jointly).

The Earned Income Tax Credit depends on your AGI, filing status, and the number of qualifying children.

Education credits like the American Opportunity Tax Credit (up to 2.5k per eligible student for tuition and related expenses). Phases out at an AGI of 80–90k (single) or 160–180k (married filing jointly). And if this credit brings your tax owed to zero, you can have up to 40 percent of the remaining amount refunded to you (up to 1k).

The Saver’s Credit – a little boost for contributing to your retirement plan . This one phases out at an AGI of 39.5k (single) or 79k (married filing jointly) in 2025.

The Premium Tax Credit helps cover health insurance premiums. Your eligibility depends on your income being 100–400 percent of the federal poverty level (calculated based on – you guessed it – AGI).

Slimming down

The key to maximizing benefits here is keeping your AGI as lean as possible year-round. You have to practice healthy tax habits (just like in life) – like making regular retirement and HSA contributions and harvesting your tax losses.

I’m aware that at the time I’m writing this, you don’t have a whole year to get last year’s AGI in tip-top shape. So how can you slim down your AGI before tax season? (Hint: It’s not with a January juice cleanse. Though, kudos if you’ve tackled that particular improve-your-health strategy.)

Making traditional IRA or HSA contributions can still lower your AGI for the 2024 tax year filing – they count as deductions for 2024 up until April 15th. So, now’s the time to make those contributions a priority.

I get it – all this may look like tax mumbo-jumbo to you. The good news is, that I’ll cover your adjusted gross income with you during your tax appointment. Which, if you haven’t yet scheduled, now’s the time. You’ll have lots more days and times to choose from now than if you wait until March. Schedule your appointment today.