The IRS defines your adjusted gross income (AGI) as your total gross income minus certain, IRS approved, deductions. Your adjusted gross income deductions do not directly include deductions for small businesses or other common deductions, such as charitable contributions, interest paid and medical expenses. However, charitable contributions end up relating to AGI in an indirect manner.
Exemptions for AGI
Select expenses directly reduce your AGI up to an IRS established maximum level per expense. For example, a teacher may subtract up to $250 from his AGI to cover the cost of qualifying educational materials and supplies purchased out-of-pocket. Armed Forces reservists, performing artists and certain government officials may also claim an expense exemption through the filing of Form 2106, Employee Business Expense. Any person or family that moves over 50 miles to obtain or retain work can claim a portion of moving expenses to reduce AGI.
Deductions for AGI
Many of the AGI deductions apply to contributions made by self-employed and payroll employees towards retirement or health benefits. For example, a self-employed person can reduce her AGI through claiming health insurance payments, retirement plan contributions and 1/2 of her paid self-employment tax as deductions. All individuals are allowed to claim health savings accounts, IRA contributions, alimony, student loan interest and tuition costs as AGI deductions.
Charitable Donation Reporting
Donations to charity appear on the Schedule A for Form 1040, Itemized Deductions. Schedule A allows you to calculate and, potentially, report your total qualifying medical and dental expenses, taxes paid, interest paid, gifts to charity, casualty and theft losses, certain job expenses and miscellaneous deductions for a tax year. When Schedule A is completed, your final sum becomes your itemized tax deduction total. Unless you are required to itemize on your taxes, it is best to compare this deduction to the standard deduction assigned to you based on your filing status. The IRS encourages taxpayers to claim the higher of the two deductions.
Where AGI and Donations Meet
When your claim an itemized tax deduction on your income tax return, the total itemized deduction includes your charitable donations. To determine your total taxable income, you must subtract your itemized deduction sum from your AGI. This new number is then reduced by the total of your exemption deduction to arrive at your taxable income. When forms from other government departments, such as the Social Security Administration or Department of Education, request your AGI for benefit computations or financial aid awards, the AGI remains unaffected by your donations to charity.
Always retain receipts provided to you by the charities you donate goods or funds to. If you are audited, these receipts or a cancelled check substantiate the itemized deduction total claimed on your income tax return. When a charity does not offer you a receipt, request one if you plan on reporting the donation on your taxes.
- IRS.gov; Form 1040; 2010
- IRS.gov; 1040 Instructions; 2010
- IRS.gov; Schedule A (Form 1040); 2010
- TurboTax: Charitable Contributions
- Internal Revenue Service. "Revenue Procedure 2018-57," Page 9. Accessed Nov. 27, 2019.
- Internal Revenue Service. "About Schedule A (Form 1040), Itemized Deductions." Accessed Nov. 27, 2019.
- Internal Revenue Service. "Topic No. 501: Should I Itemize?" Accessed Nov. 27, 2019.
- Internal Revenue Service. "Revenue Procedure 2018-57," Page 16. Accessed Nov. 27, 2019.
- Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Page 7. Accessed Nov. 27, 2019.
- Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Pages 8–10. Accessed Nov. 27, 2019.
- Internal Revenue Service. "Topic No. 419: Gambling Income and Losses." Accessed Nov. 27, 2019.
- Internal Revenue Service. "Topic No. 456: Student Loan Interest Deduction." Accessed Dec. 6, 2019.
- Internal Revenue Service. "Topic No. 458: Educator Expense Deduction." Accessed Nov. 27, 2019.
- Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Pages 8–12. Accessed Nov. 27, 2019.
Ashley Mott has 12 years of small business management experience and a BSBA in accounting from Columbia. She is a full-time government and public safety reporter for Gannett.