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Most taxpayers concentrate on ways to reduce their "taxable income". However, it is your "Adjusted Gross Income", or AGI, that is the most important number on your tax return.

Many tax credits and deductions are phased-out, or altogether eliminated, based on your AGI, or in some cases a "Modified" AGI (no gift from this MAGI), and several items of income are increased and some deductible losses are reduced as this number grows.

The Tax Reform Act of 1986 started the ball rolling by limiting the allowable rental loss deduction for taxpayers with an AGI in excess of $100,000 and phasing-out the amount of IRA contributions that could be deducted based on an AGI threshold. The Budget Reconciliation Act of 1990, the Taxpayer Relief Act of 1997 and the many tax Acts passed under George W all continued the trend of limiting credits and deductions based on AGI.

Items that are affected by your AGI (or MAGI) include:

the taxable portion of interest on US Savings Bonds used to pay for education,
losses from rental real estate activities with active participation,
the taxable portion of Social Security and Railroad Retirement benefits,
deductible traditional and spousal IRA contributions,
the ability to contribute to a ROTH IRA, and to convert a traditional IRA to a ROTH,
student loan interest,
the deduction for tuition and fees,
medical and dental expenses,
charitable contributions,
casualty and theft losses,
job expenses and most other "miscellaneous" deductions,
total Itemized Deductions,
the deduction for personal exemptions,
the dreaded Alternative Minimum Tax (AMT),
the Credit for Child and Dependent Care Expenses,
the Credit for the Elderly or Disabled,
the HOPE and Lifetime Learning education credits,
the Retirement Savings Contributions Credit,
the Child Tax Credit,
the Adoption Credit,
the Earned Income Credit,
Coverdell Education Savings Account contributions, and
the safe harbor amount for quarterly estimated tax payments.

Each of the items listed above has a separate set of AGI thresholds. For some items, such as the education credits and the deductions for student loan interest and tuition and fees, the amount for joint filers is twice that for unmarried taxpayers; for some it is not. For the reduction of Itemized Deductions the threshold is the same whether you file as Single, Head of Household, Married Filing Joint or Qualifying Widow(er). In some cases married taxpayers filing separate returns are not allowed the deduction or credit at all; in others the threshold

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