Adjustment Income Details

It's important to know the difference between itemizing your tax deductions—which isn't always necessary—and entering adjustments to revenue on your individual tax return. You can enter adjustments or "above the line" deductions (which appear on page one of Form 1040—above the line that shows your adjusted gross income) before submitting a claim for a standard deduction.

After you list your adjustments to income, you calculate your adjusted gross income (AGI). Your adjusted gross income turns up on line 11 of your tax return and the standard deduction on line 12. If your adjusted gross income is high, it's unlikely you'll qualify for many itemized deductions and tax credits.

Real World Example of Adjustments to Income

The purpose of your individual tax return, or Form 1040, is to report earned income like wages, salaries, and tips to the Internal Revenue Service. In addition, the form consists of Schedule 1, Part I, which communicates types of revenue that aren't listed, like added earnings (capital gains or losses, unemployment compensation, awards, and others). Schedule 1, Part II, lists your adjustments to income. These adjustments can be:

  • 401(k) contributions: the yearly amount of money you set aside for your pension plan.
  • Health savings account contributions: the amount of money you set aside for self and family healthcare coverage.
  • Educator expenses: expenses of eligible educators.
  • Some self-employment costs, such as retirement plan contributions, health insurance premiums, and others.
  • Savings withdrawal penalty amounts: that is the amount you pay if you withdraw funds from your savings account before its maturity date.
  • Student loan interest: its deduction is a federal tax break available to students.
  • Tuition and fees for educational expenses.
  • The traditional IRA (Individual Retirement Account) deduction.
  • Alimony: payments to a spouse determined by a court following a separation or a divorce.

Adjustment Income vs. Gross Income

Gross income is your whole revenue received from all of your sources and could include money, property, and the value of services received. Modifications and deductions reduce gross income before you calculate taxes. Some sources of income that add to your gross income are salaries, tips, interest, dividends, rents, and pension.

Adjustment Income is your Gross Income with deductions taken out. If you make a few other alterations to your Adjustment Income, like the addition of tax-exempt interest income, for example, you get Modified Adjusted Gross Income. Your Modified Adjusted Gross Income makes out if you qualify for certain, more specific deductions and credits.

History of Adjustment Income

According to the IRS, The Tax Cut and Jobs Act from 2018 changed deductions, expensing, and many other items that affect your business. The Act eliminated personal and dependent exemptions on the individual level, which may have lowered your taxable income before but compensated by increasing the standard deduction amount.

You now need to specify adjustments to income in Part II of Schedule 1. These modifications were known as "above-the-line" deductions before because they used to be on the first page of the tax returns that were used before 2017.