Paper Example on Nature and Differences Between For and From AGI Deductions

Introduction

AGI is the shortened form of adjusted gross income which can be defined as specific deductions subtracted from an individual's total receipts and gains from all sources before any deduction is made. Feldstein (1995) defines it as "the sum of an individual's income from all sources minus certain expenses and another adjustment." This makes computing an individual's AGI an important aspect in accounting for one's taxable income. In understanding the difference between the "for" and "from" adjusted gross income, there is a need for one to understand the concept of adjustment gross line. The AGI line refers to the figure calculated on tax returns after reporting all income that's subject to tax and include taxable profit on one's schedule.

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"For" AGI deductions is also known as "above the line" deductions and refers to those deductions subtracted from one's income before the adjusted gross income is calculated for tax purposes. According to the Internal Revenue Code of the United States government, it is computed by subtracting allowances from personal exemptions and itemized deductions. Above the line, deductions are set in the internal revenue code section 62 which allows for deductions in computing taxable income in consideration with section 63 of the internal revenue code. It includes items such educational expenses, loss on the property sale, rental deductions, stock loss, alimony, and moving expenses (Lowry, 2014). For AGI plays an important role in helping an individual their adjusted gross income which is the key to reducing tax liability. "From" AGI deductions, on the other hand, refers to deductions subtracted from an individual's adjusted gross income sum at the bottom of the tax return. It is also known as "below the line" deductions in most cases and often include; tax, charitable donation, medical expenses, and interest expenses. Despite the fact that it does include personal and dependent exemptions you take, they are not affected by an individual's AGI like the itemized deduction are (Prawitz, 2006).

Types of Deductions Listed in 1040 Form and Schedule A

Certain expenses for books and supplies incurred by teachers - Found in page 162 of Form 1040 clearly points out that any amount of income incurred by a teacher in the process of purchasing books and any other material needed to support education among students isn't supposed to be included when calculating taxable income.

Moving expenses - this deduction is a consideration for AGI and found on page 217 of form 1040 considers any cost incurred during travel to be deducted before calculation of the taxable income.

Alimony payments - found in line 31a of form 1040 points out that any amount of money used in supporting a spouse after a divorce is not supposed to be included when computing the taxable income.

Interest on student loans - considers any amount of money deducted from an individual's income to pay for a loan used during studies is not supposed to be included when computing taxable income. It is found on page 221 of form 1040.

Retirement plan savings for the self-employed - found on line28 of form 1040, it pinpoints out that any amount of money deducted from one's income with an aim of saving it for retirement should not be included when calculating income tax.

References

Feldstein, M. (1995). The effect of marginal tax rates on taxable income: a panel study of the 1986 Tax Reform Act. Journal of Political Economy, 103(3), 551-572.

Lowry, S. (2014). Tax Deductions for Individuals: A Summary. Congressional Research Service, Washington.

Prawitz, D. (2006). Natural deduction: A proof-theoretical study. Courier Dover Publications.