What Is Adjusted Gross Income (AGI)?

What Is Adjusted Gross Income (AGI)? In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. Taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions. For most individual tax purposes, AGI is more relevant than gross income.

Adjusted gross income (AGI) can directly impact the deductions and credits you are eligible for, which can wind up reducing the amount of taxable income you report on your tax return.

When preparing your tax return, you probably pay more attention to your taxable income than your adjusted gross income (AGI). However, your AGI is also worthy of your attention, since it can directly impact the deductions and credits you’re eligible for—which can wind up reducing the amount of taxable income you report on the return.

AGI calculation

The AGI calculation is relatively straightforward.

It is equal to the total income you report that’s subject to income tax—such as earnings from your job, self-employment, dividends, and interest from a bank account—minus specific deductions, or “adjustments” that you’re eligible to take.

Your AGI is calculated before you take the standard or itemized deductions —which you report in later sections of the return.

Gross income

Gross income includes "all income from whatever source," and is not limited to cash received. It specifically includes wages, salary, bonuses, interest, dividends, rents, royalties, income from operating a business, alimony, pensions, and annuities, share of income from partnerships and S corporations, and income tax refunds. Gross income includes net gains for disposal of assets, including capital gains and capital losses. Losses on personal assets are not deducted in computing gross income or adjusted gross income. Gifts and inheritances are excluded.

Adjustments

Gross income is reduced by certain items to arrive at adjusted gross income.
These include:

Expenses of carrying on a trade or business including most rental activities (other than as an employee)
Certain business expenses of teachers, reservists, performing artists, and fee-basis government officials,
Health savings account deductions,
Certain moving expenses
One-half of self-employment tax,
Allowable contributions to certain retirement arrangements (SEP-IRA, SIMPLE IRA, and qualified plans) and Individual Retirement Accounts (IRAs),
Penalties imposed by financial institutions and others on early withdrawal of savings,
Alimony paid (which the recipient must include in gross income),
College tuition, fees, and student loan interest (with limitations and exceptions),
Jury duty pay remitted to the juror's employer.
Domestic production activities deduction, and
Certain other items of limited applicability.

What Is Adjusted Gross Income (AGI)? - MBA Articles