Modified Adjusted Gross Income (MAGI) is used to determine whether an individual qualifies for certain tax deductions, for example, how much of an individual’s IRA contribution is deductible and whether an individual is eligible for premium tax credits. MAGI is determined by taking Adjusted Gross Income (AGI) and adding back certain items such as foreign income, foreign housing deductions, student loan deductions, IRA contribution deductions and deductions for higher education expenses.
Alternative Minimum Tax (AMT) is a supplemental income tax that recalculates income tax after adding certain tax preference items back into Adjusted Gross Income (AGI). AMT uses a separate set of rules to calculate taxable income after allowed deductions for certain individuals, corporations, estates and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax. Preferential deductions are added back into the taxpayer’s income to calculate their alternative minimum taxable income (AMTI), then the AMT exemption is subtracted to determine the final taxable figure.
As always, consult your tax advisor before taking any action on matters that may affect your tax situation.