What is Adjusted Gross Income (AGI)?
Adjusted Gross Income (AGI) is an individual’s total gross income from all taxable sources, minus specific deductions allowed by tax authorities. It serves as a starting point for calculating taxable income and determining eligibility for various credits and deductions.
How AGI is Calculated
Gross Income: Add all income sources, including wages, business earnings, dividends, interest, and capital gains.
Subtract Adjustments: Deduct allowable expenses like retirement contributions, student loan interest, health savings account contributions, and alimony payments.
Example
An individual earns $120,000 in gross income. After subtracting $5,000 in retirement contributions and $2,000 in student loan interest, their AGI is $113,000.
Importance
Determines eligibility for tax deductions and credits
Impacts tax bracket and tax owed
Used by lenders and financial planners for financial assessments