Smart TaxesSmart Taxes

The most important numbers on your tax return

Most taxpayers concentrate on ways to reduce their taxable income, but they need to focus on adjusted gross income instead.

By MSN Money producer Jan 30, 2014 4:00PM

Tax forms © Corbis

By Robert D. Flach, MainStreetMainStreet

Most taxpayers concentrate on ways to reduce their "taxable income." However, it is your "adjusted gross income" (AGI) -- Line 37 on Form 1040 or Line 21 on Form 1040A -- that is really the most important number on your tax return.


There are two types of tax deductions -- those allowed "above the line" and those claimed "below the line." The "line" is your adjusted gross income.


"Above the line" deductions reduce your adjusted gross income. You do not have to itemize to claim these deductions, aka "adjustments to income", which include:


  • Alimony 
  • Early withdrawal penalties for CDs and savings accounts 
  • Educator expenses 
  • Job-related moving expenses  
  • Self-employed deductions for health insurance premiums, half of the self-employment tax and traditional retirement plan contributions. 
  • Student loan interest
  • Traditional IRA contributions 
  • Tuitions and fees 

Deductions "below the line" include the standard deduction, personal exemptions and itemized deductions. These deductions reduce taxable income, but not adjusted gross income.


Why is your AGI so important? Many tax deductions and credits are phased-out, or altogether eliminated, based on the amount of your AGI, or in some cases a "modified" AGI (MAGI). Some items of income are increased, and deductible losses reduced, as this number grows. Reducing your AGI could reduce the amount of taxable income you must report and increase the deductions and credits you can claim.


An "above-the-line" deduction of $1,000 could actually reduce your net taxable income by more than $1,000. The tax benefit of a deduction claimed "below the line" is always limited to the amount of the actual deduction. A $1,000 "below the line" deduction will only reduce your net taxable income by $1,000.

More from MainStreet


Jan 31, 2014 10:17AM
This is just me but I would rather have no deductions and a flat tax where everybody pays thier fair share both rich and poor.
Jan 30, 2014 10:43PM
Why can't it just be simplified, let us all have the same tax free status as the national football league, and corporations that own every member of congress, lets not forget wall street crooks. then we can all be happy come tax time. Coravette
Jan 30, 2014 10:03PM
Have you ever noticed that when you get real close to driving a stake through the heart of one of MSNs Money opinions or discussions your comment doesn't seem to get posted. Especially if you are real close to exposing just how much baggage they are carrying around for the Obama Administration.
Jan 30, 2014 10:30PM
Jan 31, 2014 6:11AM
 HUH???  is this one of those DUH moments or am I not seeing something?
 "An "above-the-line" deduction of $1,000 could actually reduce your net taxable income by more than $1,000. The tax benefit of a deduction claimed "below the line" is always limited to the amount of the actual deduction. A $1,000 "below the line" deduction will only reduce your net taxable income by $1,000."

Jan 30, 2014 11:24PM
The author of this article should consider staying in school until he learns how to research a topic and convey the information in an understandable manner.  Either that, or transfer from the U. of New Hampshire to a school which can teach journalism.
Jan 31, 2014 9:48AM
Good information but most like won't help the average person filing taxes because won't apply for your individual situation. If it applied to most it would be eliminated.
Jan 31, 2014 1:49PM
Why can't the tax form just ask for your total annual income, depending on how much that is, levy a percentage of tax on that amount, and pay it.  But, NO, they have, over the years, devised all these "if-thens" to create tax-shelters for themselves and all their cronies, that it just gets more and more complicated.  Its kinda like when they passed Obamacare, you find out what's in it after it passes and you have to comply with what it says!!!
Jan 31, 2014 2:04PM
I can't believe our Congress, it seems everyone in the U.S. is up for a rewrite of the tax laws and rates yet Congress does nothing.
Jan 31, 2014 1:31PM
just trash the whole tax system. make it simple. No one pays any tax on their income up to the mean poverty line. then every dollar above that line is taxed at the same rate for everyone no matter how much you make.  then add a simple flat consumption tax for all on consumable or prepared items. not food from the store, toilet paper, water, electric, heating gas but a consmuption tax on candy, cars, and the other non essentials. so lets say a flat 16% of all income above the poverty level then a 8% national sales tax.  the rich will spend more as they have more so they will be paying more in taxes  the savers and less fortunate will pay less but still pay into the system.  then have the government live within its means and not be on a spending spree all the time...
Feb 5, 2014 11:52AM

I had the misfortune yesterday of calling the IRS,to a number that was given on their web cite. The lady  answering the phone was obviously reading from a script or was trained to sound like a robot. No need to go into detail,but it was a futile experience. It was a little like explaining Obama Care to Nancy Pelosi.

Jan 30, 2014 10:43PM
I fail to see the difference between "taxable income" and "adjusted gross income"  , seems to me they are both the exact same thing since adjusted gross income is the number used to determine how much tax you pay it is your taxable income . Back in the old days you used to figure out exactly what it would take to drop you into the next bracket since the lower you went the lower your tax percentage but these days it doesn't use the old bracket method at least not as much and it works a lot differently .
Jan 31, 2014 10:12AM
A President has only three choices on "Talking about Taxes"  He can ask for an increase, he can ask for a decrease, or he can say nothing about it. It has been that way since 1913 or when Income Tax started. Congress controls what and how much you can and can't deduct, they do this review every year about Sept or Nov. That's that, end of conversation, case closed, and it's time for all Trolls to go to bed. Here is your baba all full of warm Troll Aid, nighty night.
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