**Is AGI And Taxable Income The Same? Unveiling The Differences**

Is Agi And Taxable Income The Same thing? The answer is no, Adjusted Gross Income (AGI) and taxable income are not the same, understanding the nuances between them is crucial for accurate tax planning and financial success. At income-partners.net, we help business owners and investors like you forge strategic partnerships that boost revenue and ensure compliance. Let’s explore AGI and taxable income, including how they’re calculated and why they matter for your financial health.

Understanding these key distinctions empowers you to optimize your tax strategy, identify beneficial deductions, and unlock new financial opportunities. Dive in to discover how AGI and taxable income influence your financial partnerships and income growth, enhanced financial insights, and optimized business collaborations!

1. What Is Adjusted Gross Income (AGI)?

Adjusted Gross Income (AGI) is your gross income minus specific deductions, it’s a crucial figure in determining your tax liability and eligibility for various tax benefits.

1.1. Definition of Adjusted Gross Income

AGI is calculated by taking your total gross income—which includes wages, salaries, tips, interest, dividends, and capital gains—and subtracting certain “above-the-line” deductions. These deductions can significantly reduce your taxable income, offering substantial tax savings.

1.2. Components of Gross Income

Gross income encompasses all income you receive before any deductions or adjustments. According to the IRS, gross income includes but is not limited to:

Wages and Salaries: All compensation received from employment.
Tips: Income received as gratuities for services provided.
Interest Income: Earnings from savings accounts, bonds, and other interest-bearing investments.
Dividends: Payments received from stock ownership.
Capital Gains: Profits from the sale of assets like stocks, bonds, and real estate.
Business Income: Revenue generated from self-employment, freelancing, or business ventures.
Rental Income: Earnings from renting out property.
Retirement Income: Distributions from pensions, annuities, and retirement accounts.

1.3. Above-the-Line Deductions

Above-the-line deductions are specific expenses that can be subtracted from your gross income to arrive at your AGI. These deductions are claimed on Schedule 1 of Form 1040 and offer a way to reduce your taxable income. Here are some common above-the-line deductions:

Educator Expenses: Eligible educators can deduct up to $300 in unreimbursed expenses for classroom materials.
Health Savings Account (HSA) Contributions: Contributions to an HSA are deductible, helping you save for future healthcare costs. According to Publication 969 from the IRS, this includes contributions you make for yourself.
IRA Contributions: Contributions to a traditional IRA may be deductible, depending on your income and whether you’re covered by a retirement plan at work.
Student Loan Interest: You can deduct the interest paid on student loans, up to $2,500 annually.
Self-Employment Tax: You can deduct one-half of your self-employment tax, effectively reducing your AGI.
Alimony Payments: Payments made under a divorce or separation agreement executed before 2019 are deductible.

1.4. AGI Calculation Example

Let’s illustrate how AGI is calculated with an example:

Scenario:

Sarah earns a salary of $80,000.
She has $500 in interest income from a savings account.
She contributes $3,000 to a traditional IRA.
She pays $1,500 in student loan interest.

Calculation:

Gross Income: $80,000 (salary) + $500 (interest income) = $80,500
Above-the-Line Deductions: $3,000 (IRA contribution) + $1,500 (student loan interest) = $4,500
Adjusted Gross Income (AGI): $80,500 (gross income) – $4,500 (deductions) = $76,000

In this example, Sarah’s AGI is $76,000. This is the income figure used to determine her eligibility for various tax credits and deductions.

2. Understanding Taxable Income

Taxable income is the amount of income that is subject to tax, it is derived from your AGI and further reduced by either the standard deduction or itemized deductions.

2.1. Definition of Taxable Income

Taxable income is your AGI less any further deductions you’re eligible to claim. It’s the base amount on which your income tax is calculated. Understanding how to minimize your taxable income can lead to significant tax savings.

2.2. Standard Deduction vs. Itemized Deductions

After calculating your AGI, you have the option to reduce your taxable income further by either taking the standard deduction or itemizing deductions.

Standard Deduction: This is a fixed dollar amount that the IRS allows all taxpayers to deduct, which varies based on filing status. For example, the standard deduction for single filers in 2024 is $14,600.
Itemized Deductions: These are specific expenses that you can deduct if they exceed the standard deduction amount. Common itemized deductions include:
- Medical Expenses: The amount of medical expenses that exceed 7.5% of your AGI.
- State and Local Taxes (SALT): Limited to $10,000 per household.
- Home Mortgage Interest: Interest paid on a home mortgage, subject to certain limitations.
- Charitable Contributions: Donations to qualified charitable organizations.

2.3. Calculating Taxable Income

To calculate your taxable income, you will subtract either the standard deduction or your total itemized deductions (whichever is greater) from your AGI.

Formula:

Taxable Income = AGI - (Standard Deduction or Itemized Deductions)

2.4. Taxable Income Calculation Example

Let’s continue with Sarah’s example to calculate her taxable income:

Scenario:

Sarah’s AGI (from the previous example) is $76,000.
The standard deduction for a single filer in 2024 is $14,600.
Sarah’s itemized deductions include $3,000 in medical expenses (after the 7.5% AGI threshold), $5,000 in state and local taxes, and $2,000 in charitable contributions, totaling $10,000.

Calculation:

Compare Standard Deduction vs. Itemized Deductions:
- Standard Deduction: $14,600
- Itemized Deductions: $10,000
- Since the standard deduction is greater, Sarah will use that.
Calculate Taxable Income:
- Taxable Income = AGI – Standard Deduction
- Taxable Income = $76,000 – $14,600 = $61,400

In this case, Sarah’s taxable income is $61,400. This is the amount used to determine her tax liability based on the applicable tax brackets.

3. Key Differences Between AGI and Taxable Income

Understanding the key differences between Adjusted Gross Income (AGI) and taxable income is essential for effective tax planning. AGI and taxable income serve different purposes in the tax calculation process.

3.1. Definitions Revisited

Adjusted Gross Income (AGI): Gross income minus above-the-line deductions.
Taxable Income: AGI minus either the standard deduction or itemized deductions.

3.2. Calculation Steps

The calculation steps highlight the order in which these figures are determined:

Calculate Gross Income: Total income from all sources before any deductions.
Calculate AGI: Subtract above-the-line deductions from gross income.
Determine Deduction Type: Choose between the standard deduction or itemized deductions, selecting whichever is larger.
Calculate Taxable Income: Subtract the chosen deduction (standard or itemized) from AGI.

3.3. Impact on Tax Liability

AGI and taxable income both play crucial roles in determining your tax liability but do so at different stages:

AGI: Used to determine eligibility for certain tax credits and deductions. Many credits and deductions have income thresholds based on AGI.
Taxable Income: The final figure used to calculate your income tax. Your tax liability is determined by applying the appropriate tax rates to your taxable income.

3.4. Eligibility for Deductions and Credits

AGI often serves as a benchmark for determining eligibility for various deductions and credits. For example:

Medical Expense Deduction: You can deduct medical expenses exceeding 7.5% of your AGI.
IRA Contributions: The deductibility of traditional IRA contributions can be limited if your income exceeds certain AGI thresholds.
Child Tax Credit: Eligibility for the Child Tax Credit may depend on your AGI.

Taxable income, on the other hand, directly influences the amount of tax you owe. A lower taxable income means a lower tax liability.

3.5. Examples of AGI vs. Taxable Income

Let’s consider a few scenarios to illustrate the differences:

Scenario 1:

Gross Income: $90,000
Above-the-Line Deductions: $6,000
AGI: $84,000
Standard Deduction: $14,600
Taxable Income: $69,400

In this case, the AGI is $84,000, but the taxable income, after subtracting the standard deduction, is $69,400.

Scenario 2:

Gross Income: $120,000
Above-the-Line Deductions: $10,000
AGI: $110,000
Itemized Deductions: $20,000
Taxable Income: $90,000

Here, the AGI is $110,000, and the taxable income, after subtracting itemized deductions, is $90,000.

3.6. Importance of Accurate Calculation

Accurate calculation of both AGI and taxable income is crucial for several reasons:

Tax Compliance: Ensuring you pay the correct amount of tax and avoid penalties.
Eligibility for Benefits: Maximizing your eligibility for tax credits and deductions.
Financial Planning: Making informed financial decisions based on accurate income and tax data.

By understanding the distinctions between AGI and taxable income, you can better navigate the complexities of tax planning.

4. How AGI Affects Tax Credits and Deductions

Adjusted Gross Income (AGI) significantly impacts your eligibility for various tax credits and deductions. Many tax benefits have income thresholds based on AGI, determining whether you can claim them and the amount you can receive.

4.1. Overview of Tax Credits and Deductions

Tax Credits: Direct reductions in your tax liability, providing a dollar-for-dollar decrease in the amount of tax you owe.
Tax Deductions: Reductions in your taxable income, lowering the amount of income subject to tax.

4.2. Tax Credits Affected by AGI

Several tax credits are directly influenced by your AGI. Here are some notable examples:

Child Tax Credit: The Child Tax Credit provides a credit for each qualifying child. However, the amount of the credit can be affected by your AGI. For 2024, the full credit is available to those with lower incomes, with a phase-out occurring at higher AGI levels. According to the IRS, understanding these thresholds is critical to maximizing this credit.
- Example: For a single filer, the Child Tax Credit begins to phase out at an AGI of $200,000.
Earned Income Tax Credit (EITC): The EITC is a credit for low- to moderate-income working individuals and families. Your AGI must be below certain limits to qualify. The IRS provides detailed guidelines on income limits based on filing status and the number of qualifying children.
- Example: For the 2024 tax year, a single filer with no qualifying children must have an AGI below $16,480 to be eligible for the EITC.
Premium Tax Credit (PTC): The PTC helps individuals and families afford health insurance purchased through the Health Insurance Marketplace. Your eligibility for the PTC depends on your estimated AGI, which is used to determine the amount of financial assistance you receive. The Instructions for Form 8962 provide detailed guidance on calculating and claiming the PTC.
- Example: The PTC is available to individuals with a household income between 100% and 400% of the federal poverty line.

4.3. Tax Deductions Affected by AGI

AGI also affects the amount you can deduct for certain expenses. Here are some key deductions that are influenced by your AGI:

Medical Expense Deduction: You can deduct medical expenses that exceed 7.5% of your AGI. The higher your AGI, the higher the threshold you must exceed to claim this deduction.
- Example: If your AGI is $60,000, you can only deduct medical expenses exceeding $4,500 (7.5% of $60,000).
Traditional IRA Deduction: The deductibility of contributions to a traditional IRA depends on your income and whether you are covered by a retirement plan at work. If you are covered by a retirement plan, your AGI determines whether you can deduct the full amount, a partial amount, or no amount. According to Publication 590-A, understanding these limits is crucial for retirement planning.
- Example: For 2024, if you are covered by a retirement plan at work and file as single, your IRA deduction may be limited if your AGI is between $77,000 and $87,000.
Student Loan Interest Deduction: While this is an above-the-line deduction, it’s worth noting that it is capped at $2,500 annually and can be impacted by your AGI.

4.4. Examples of AGI Thresholds

To further illustrate how AGI affects tax benefits, consider the following examples:

Example 1: Child Tax Credit

A family with two children has an AGI of $150,000. They are eligible for the full Child Tax Credit for each child.
If their AGI is $450,000, the Child Tax Credit may be reduced or eliminated due to the income phase-out rules.

Example 2: Earned Income Tax Credit

A single individual with no children has an AGI of $15,000. They may be eligible for the EITC.
If their AGI is $25,000, they will not qualify for the EITC due to exceeding the income limit.

Example 3: Medical Expense Deduction

An individual with an AGI of $50,000 has $6,000 in medical expenses. They can deduct $2,250, which is the amount exceeding 7.5% of their AGI ($3,750).
If their AGI is $80,000, they would need to have medical expenses exceeding $6,000 to claim a deduction.

4.5. Strategies to Manage AGI

Given the significant impact of AGI on tax benefits, it’s important to manage your AGI effectively. Here are some strategies to consider:

Maximize Retirement Contributions: Contributing to tax-deferred retirement accounts like 401(k)s and traditional IRAs can lower your AGI.
Utilize Health Savings Accounts (HSAs): Contributions to an HSA are deductible and can reduce your AGI while helping you save for healthcare costs.
Claim All Eligible Above-the-Line Deductions: Ensure you are claiming all eligible deductions, such as student loan interest, self-employment tax, and alimony payments (if applicable).
Consider Tax-Loss Harvesting: Selling investments at a loss can offset capital gains and reduce your overall income.

5. Strategies to Reduce Taxable Income

Reducing your taxable income is a fundamental goal of tax planning. Lowering your taxable income can lead to significant tax savings.

5.1. Maximize Above-the-Line Deductions

As discussed earlier, above-the-line deductions directly reduce your AGI, which in turn lowers your taxable income. Ensure you are taking full advantage of these deductions:

Retirement Contributions: Maximize contributions to 401(k)s, traditional IRAs, and other retirement plans.
HSA Contributions: Contribute the maximum allowable amount to your Health Savings Account.
Student Loan Interest: Deduct the full amount of student loan interest you paid during the year.
Self-Employment Tax: Deduct one-half of your self-employment tax.
Educator Expenses: If you are an eligible educator, deduct up to $300 in unreimbursed expenses.

5.2. Choose the Optimal Deduction Method

Deciding between the standard deduction and itemizing deductions is a critical step in reducing your taxable income. Here’s how to make the best choice:

Calculate Itemized Deductions: Add up all your potential itemized deductions, including medical expenses, state and local taxes (SALT), home mortgage interest, and charitable contributions.
Compare to Standard Deduction: Compare your total itemized deductions to the standard deduction for your filing status. Choose the method that results in the higher deduction.
Consider Bunching: If your itemized deductions are close to the standard deduction amount, consider “bunching” deductions. This involves strategically timing expenses so that you can exceed the standard deduction in one year and take the standard deduction in the following year.

5.3. Claim All Eligible Itemized Deductions

If your itemized deductions exceed the standard deduction, make sure you are claiming all eligible expenses:

Medical Expenses: Deduct medical expenses exceeding 7.5% of your AGI. Keep detailed records of all medical bills and expenses.
State and Local Taxes (SALT): Deduct state and local taxes, including property taxes, income taxes, and sales taxes, up to a maximum of $10,000 per household.
Home Mortgage Interest: Deduct interest paid on your home mortgage, subject to certain limitations based on the date and amount of the mortgage.
Charitable Contributions: Deduct donations to qualified charitable organizations. Keep receipts and records of all donations.

5.4. Utilize Tax Credits

Tax credits provide a dollar-for-dollar reduction in your tax liability, effectively lowering the amount of tax you owe. Take advantage of all the credits you are eligible for:

Child Tax Credit: Claim the Child Tax Credit for each qualifying child.
Earned Income Tax Credit (EITC): If you meet the income requirements, claim the EITC to reduce your tax liability and potentially receive a refund.
Education Credits: Claim education credits like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit for eligible education expenses.
Energy Credits: Take advantage of energy-efficient home improvement credits, such as the Residential Clean Energy Credit or the Energy Efficient Home Improvement Credit.

5.5. Invest in Tax-Advantaged Accounts

Investing in tax-advantaged accounts can provide significant tax benefits:

401(k) and Traditional IRA: Contributions to these accounts are tax-deductible, lowering your taxable income in the current year.
Roth IRA: While contributions are not tax-deductible, earnings and withdrawals are tax-free in retirement.
529 Plans: Contributions to 529 plans for education expenses may be tax-deductible at the state level, and earnings grow tax-free.
Health Savings Account (HSA): Contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

5.6. Consider Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset capital gains and reduce your overall income. Here’s how it works:

Identify Losing Investments: Review your investment portfolio and identify any investments that have decreased in value.
Sell Losing Investments: Sell the losing investments to realize a capital loss.
Offset Capital Gains: Use the capital loss to offset any capital gains you have realized during the year.
Deduct Excess Losses: If your capital losses exceed your capital gains, you can deduct up to $3,000 of the excess loss against your ordinary income.

5.7. Consult a Tax Professional

Tax laws can be complex, and it’s important to seek professional advice to ensure you are maximizing your tax savings. A qualified tax professional can help you identify all the deductions and credits you are eligible for and develop a tax plan that meets your specific needs.

6. Common Mistakes to Avoid When Calculating AGI and Taxable Income

Calculating Adjusted Gross Income (AGI) and taxable income accurately is crucial for tax compliance and maximizing tax benefits. Avoiding common mistakes can save you time, money, and potential penalties.

6.1. Misreporting Income

Mistake: Failing to report all sources of income, such as wages, self-employment income, investment income, and rental income.
Consequence: Underreporting income can lead to penalties, interest charges, and potential audits.
Solution: Keep detailed records of all income sources and ensure that you report all income on your tax return. Double-check your W-2s, 1099s, and other income statements.

6.2. Overlooking Above-the-Line Deductions

Mistake: Neglecting to claim eligible above-the-line deductions, such as IRA contributions, student loan interest, and HSA contributions.
Consequence: Paying more tax than necessary by not reducing your AGI.
Solution: Review Schedule 1 of Form 1040 to identify all eligible above-the-line deductions. Gather documentation to support your deductions.

6.3. Incorrectly Calculating Itemized Deductions

Mistake: Making errors when calculating itemized deductions, such as medical expenses, state and local taxes (SALT), and charitable contributions.
Consequence: Overstating or understating your itemized deductions, leading to an inaccurate taxable income.
Solution: Keep detailed records of all expenses and use accurate calculations. Be aware of any limitations or thresholds, such as the 7.5% AGI threshold for medical expenses and the $10,000 limit for SALT deductions.

6.4. Choosing the Wrong Deduction Method

Mistake: Failing to compare the standard deduction to itemized deductions and choosing the less beneficial option.
Consequence: Paying more tax than necessary by not maximizing your deduction.
Solution: Calculate both your standard deduction and itemized deductions and choose the method that results in the higher deduction.

6.5. Misunderstanding Tax Credits

Mistake: Not claiming eligible tax credits or misunderstanding the requirements for claiming them.
Consequence: Missing out on valuable tax savings.
Solution: Research available tax credits and carefully review the eligibility requirements. Use resources like the IRS website and tax preparation software to identify credits you may qualify for.

6.6. Errors in Filing Status

Mistake: Choosing the incorrect filing status, such as single, married filing jointly, or head of household.
Consequence: Affecting your standard deduction, tax brackets, and eligibility for certain tax benefits.
Solution: Understand the requirements for each filing status and choose the one that accurately reflects your situation. If you are unsure, consult a tax professional.

6.7. Neglecting to Keep Proper Records

Mistake: Failing to keep detailed records and documentation to support your income, deductions, and credits.
Consequence: Difficulty substantiating your tax return in the event of an audit.
Solution: Maintain organized records of all income statements, receipts, and other relevant documents. Store these records securely and retain them for at least three years.

6.8. Not Seeking Professional Advice

Mistake: Attempting to navigate the complexities of tax law without professional assistance.
Consequence: Missing out on potential tax savings and increasing the risk of errors.
Solution: Consult a qualified tax professional who can provide personalized advice and guidance based on your specific situation.

6.9. Ignoring Changes in Tax Law

Mistake: Failing to stay informed about changes in tax law that could affect your AGI and taxable income.
Consequence: Making errors based on outdated information and missing out on new tax benefits.
Solution: Stay informed about tax law changes by following updates from the IRS, consulting with a tax professional, and subscribing to reputable tax news sources.

7. Resources for Calculating AGI and Taxable Income

Accurately calculating your Adjusted Gross Income (AGI) and taxable income requires reliable resources and tools. The IRS and other reputable sources offer valuable assistance to help you navigate the complexities of tax preparation.

7.1. IRS Website and Publications

The IRS website (IRS.gov) is the primary source for all things tax-related. It offers a wealth of information, including:

Forms and Publications: Access to all IRS forms, instructions, and publications, such as Form 1040, Schedule 1, and Publication 17 (Your Federal Income Tax).
Tax Law Updates: Information on recent changes to tax laws and regulations.
FAQs: Answers to frequently asked questions about various tax topics.
Tax Tools: Interactive tools and calculators to help you estimate your tax liability and eligibility for certain credits and deductions.

7.2. Tax Preparation Software

Tax preparation software can simplify the process of calculating your AGI and taxable income. Popular options include:

TurboTax: User-friendly software that guides you through the tax preparation process and helps you identify potential deductions and credits.
H&R Block: Comprehensive software with options for both DIY tax preparation and assistance from tax professionals.
TaxAct: Affordable software that offers a range of features for individuals and businesses.

7.3. Tax Professionals

Consulting a qualified tax professional can provide personalized guidance and ensure that you are maximizing your tax savings. Types of tax professionals include:

Certified Public Accountants (CPAs): Licensed professionals with expertise in accounting and tax law.
Enrolled Agents (EAs): Federally authorized tax practitioners who can represent taxpayers before the IRS.
Tax Attorneys: Attorneys specializing in tax law who can provide legal advice and representation.

7.4. Financial Advisors

Financial advisors can help you integrate tax planning into your overall financial strategy. They can provide advice on:

Retirement Planning: Strategies to maximize tax-advantaged retirement savings.
Investment Planning: Tax-efficient investment strategies to minimize capital gains and maximize returns.
Estate Planning: Strategies to minimize estate taxes and ensure a smooth transfer of assets.

7.5. Educational Resources

Numerous educational resources can help you improve your understanding of tax law and financial planning:

Online Courses: Platforms like Coursera and Udemy offer courses on tax preparation and financial planning.
Books and Publications: Books and magazines on personal finance and tax planning can provide valuable insights and guidance.
Webinars and Seminars: Attend webinars and seminars on tax-related topics to stay informed about recent changes and best practices.

7.6. Government Agencies

In addition to the IRS, other government agencies can provide resources and assistance related to taxes and financial planning:

Small Business Administration (SBA): Offers resources for small business owners, including information on tax requirements and financial management.
State Tax Agencies: Provide information on state income taxes and other state tax requirements.

7.7. Publications and Articles

Staying informed about tax law changes and financial planning strategies is essential. Subscribe to reputable publications and articles on these topics:

The Wall Street Journal: Offers articles on tax law and financial planning.
Forbes: Provides insights on tax strategies and wealth management.
Kiplinger: Offers advice on personal finance and tax planning.

8. Real-World Examples of AGI and Taxable Income Impact

Understanding the practical implications of Adjusted Gross Income (AGI) and taxable income can help you make informed financial decisions and optimize your tax strategy. Real-world examples illustrate how these figures affect different individuals and families.

8.1. Scenario 1: Single Professional

Background: Sarah is a single professional with a salary of $75,000. She contributes $5,000 to a traditional IRA and pays $2,000 in student loan interest.
AGI Calculation:
- Gross Income: $75,000
- IRA Contribution: $5,000
- Student Loan Interest: $2,000
- AGI: $75,000 – $5,000 – $2,000 = $68,000
Taxable Income Calculation:
- AGI: $68,000
- Standard Deduction (2024): $14,600
- Taxable Income: $68,000 – $14,600 = $53,400
Impact: Sarah’s AGI of $68,000 affects her eligibility for certain tax credits and deductions. Her taxable income of $53,400 is used to calculate her income tax liability based on the applicable tax brackets.

8.2. Scenario 2: Married Couple with Children

Background: John and Mary are married with two children. John earns $60,000, and Mary earns $40,000. They contribute $8,000 to retirement accounts and pay $3,000 in mortgage interest.
AGI Calculation:
- Gross Income: $60,000 + $40,000 = $100,000
- Retirement Contributions: $8,000
- AGI: $100,000 – $8,000 = $92,000
Taxable Income Calculation:
- AGI: $92,000
- Standard Deduction (2024, Married Filing Jointly): $29,200
- Child Tax Credit (per child): $2,000
- Taxable Income: $92,000 – $29,200 = $62,800
Impact: John and Mary’s AGI of $92,000 affects their eligibility for the Child Tax Credit. Their taxable income of $62,800 is used to calculate their income tax liability.

8.3. Scenario 3: Self-Employed Individual

Background: David is self-employed and earns $80,000 in gross income. He has $10,000 in business expenses, contributes $6,000 to a SEP IRA, and pays $2,000 in self-employment tax.
AGI Calculation:
- Gross Income: $80,000
- Business Expenses: $10,000
- SEP IRA Contribution: $6,000
- Self-Employment Tax Deduction: $2,000 / 2 = $1,000
- AGI: $80,000 – $10,000 – $6,000 – $1,000 = $63,000
Taxable Income Calculation:
- AGI: $63,000
- Standard Deduction (2024, Single): $14,600
- Taxable Income: $63,000 – $14,600 = $48,400
Impact: David’s AGI of $63,000 affects his eligibility for certain tax credits and deductions. His taxable income of $48,400 is used to calculate his income tax liability.

8.4. Scenario 4: Homeowner

Background: Lisa is a homeowner with a salary of $90,000. She pays $8,000 in mortgage interest, $5,000 in state and local taxes (SALT), and donates $2,000 to charity.
AGI Calculation:
- Gross Income: $90,000
- No above-the-line deductions in this scenario
- AGI: $90,000
Taxable Income Calculation:
- AGI: $90,000
- Itemized Deductions:
  - Mortgage Interest: $8,000
  - SALT: $5,000 (limited to $10,000)
  - Charitable Contributions: $2,000
  - Total Itemized Deductions: $8,000 + $5,000 + $2,000 = $15,000
- Since her itemized deductions ($15,000) are greater than the standard deduction ($14,600), she will use itemized deductions.
- Taxable Income: $90,000 – $15,000 = $75,000
Impact: Lisa’s AGI of $90,000 affects her eligibility for certain tax credits and deductions. Her taxable income of $75,000 is used to calculate her income tax liability.

8.5. Scenario 5: Retiree

Background: Robert is a retiree with $50,000 in Social Security income and $30,000 in retirement account distributions.
AGI Calculation:
- Gross Income: $30,000 (retirement distributions) + portion of Social Security that is taxable. The taxable portion of social security varies. For this example it is: $20,000
- AGI: $30,000 + $20,000 = $50,000
Taxable Income Calculation:
- AGI: $50,000
- Standard Deduction (2024, Single):