Unanticipated Consequences of Taxable Income Increases: Lessons for Retirees.

Understanding the role of adjusted gross income (AGI) in computing taxable income is crucial to providing good tax and financial planning, especially for retirees. Not every financial planner will be a tax expert but understanding some of the interactions between income items and what type of taxes and costs might be incurred as the result of a transaction is essential. For example, because of a bright-line cutoff, just one additional dollar of modified AGI (MAGI) can trigger an additional $4,351.20 in Medicare Part B premiums. This article reviews the federal income tax formula and discusses some specific income items, including how changes in one item affect other items. It provides examples of some of the additional taxes and costs that can be incurred. [ABSTRACT FROM AUTHOR]