8a Certification: Determine Whether Your AGI is Below $250K

8a certification is a business development program for small businesses. Obtaining this certification is not an easy affair. The United States Small Business Administration is very stringent when it comes to approving the certification for small businesses. It scrutinizes the application in details and if it finds any SBA 8a certification requirement not being met, it rejects the application straightway.

If you are a small business wanting to get 8a certified, you need to make sure you first know the requirements for SBA 8a certification thoroughly. You need to be a ‘small business’ as per the SBA rules, you should be socially and economically disadvantaged not having more than $250K as your average AGI over the past three tax years, the small business need to be owned and controlled by disadvantaged individuals, your business should be 2 years of age at least and the business owner needs to have a good character.

8a Certification

Here we have discussed about how to determine if an 8a applicant’s average Adjusted Gross Income, which should not be more than $250K over the past three tax years.

Before starting, let’s first learn what is an AGI. It’s a tax term for an amount used in the calculation of the individual’s income tax liability. It’s calculated by taking the gross income of the applicant and subtracting the maximum allowable adjustments.

How to determine your AGI for 8a certification?

An easy way to determine if your AGI has exceeded $250K threshold is to add the AGI number for the past three tax years, which is the on the first page of the Form 1040. Add these three numbers, divide them by three and then find out what’s the result? If the amount exceeds $250,000, you need to do more analysis. If the number is not more than $250,000, then be happy you have not exceeded the threshold and that you have met one of the major 8a certification criteria.

If you’ve found out that your AGI is more than $250K, then a further analysis might help you. Sometimes it happens that married couple file their taxes jointly. In such a case, you need to separate your part of income, which is reported on tax return. After doing this, add up the AGI numbers for the last three years and then divide them by three again. If the number exceeds $250,000, you need to do more analysis. If it is below $250K, you can be happy that now you have met the criteria.

However, if the average AGI is more than $250K, there is one more way to see if you still exceed the specified threshold. If your company is an S-Corporation or an LLC you can:

• Deduct the income, which is related to the enterprise and that was reinvested into the business, less any distributions.

• Deduct the income, which has been used for paying the S-Corporation or LLC federal taxes within one year of the income distribution.

Determining your AGI for 8a certification is a complicated affair. Advance 8a can assist you to determine your Adjusted Gross Income should you require more help.