Glossary
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