Adjusted Gross Income - AGI


DEFINITION of 'Adjusted Gross Income - AGI'

Adjusted gross income is a measure of income calculated from your gross income and used to determine how much of your income is taxable.

BREAKING DOWN 'Adjusted Gross Income - AGI'

Adjusted gross income (AGI) is a modification of gross income in the United States tax code.  Gross income is simply the sum of everything an individual earns in a year.  AGI factors a number of deductions from one's gross income to reach the figure for which an individual's income taxes will be calculated, and is generally more useful than gross income for individual tax activities.  The deductions which modify gross income to adjusted gross income are all above the line, which means that they are taken into account before tax exemptions for military service, dependent status, etc.

Some of the most prominent deductions made to reach an individual's adjusted gross income include

  • Unreimbursed business expenses
  • Medical expenses
  • Alimony
  • Retirement plan contributions
  • Losses incurred from the sale or exchange of property

When calculating individual AGI, begin by tallying your reported income statements for the year in question, while also adding other sources of taxable income: profit on the sale of property, unemployment compensation, pensions, Social Security payments and any other income not reported on your tax returns. From this total of earnings, subtract the applicable deductions to reach your AGI. A complete list of the requirements for possible deductions from gross income can be found in the Internal Revenue Code or on the IRS website.  Many of the requirements are very specific, and an individual must look very carefully at the federal tax code to make sure they are eligible for any deductions they are making.  

After calculating AGI, the taxpayer can then apply the standard federal tax deductions to reach their taxable income, or if eligible, the taxpayer can itemize their expenses and receive itemized deductions instead, which can be better for the taxpayer in some situations.  When working on individual taxes, then, the AGI is an important but intermediate step in determining how much of one's gross income is taxable.  Be careful not to confuse AGI with modified adjusted gross income (MAGI), which is used to calculate an individual's deductible amount from an individual retirement account (IRA).

  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Married Filing Jointly

    A filing status for married couples that have wed before the ...
  4. Taxable Income

    The amount of income that is used to calculate an individual's ...
  5. Accumulated Earnings Tax

    A tax imposed by the federal government upon companies with retained ...
  6. Personal Income

    Total compensation received by an individual. Personal income ...
Related Articles
  1. Taxes

    What is Adjusted Gross Income?

    Adjusted gross income (AGI) is a term from the Internal Revenue Code. AGI is used to determine a person’s income taxes due.
  2. Taxes

    Tax-Saving Advice For IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  3. Taxes

    Cut Taxes By Reporting Property Damage

    Know the options you have for your insured property if and when a disaster strikes.
  4. Retirement

    Traditional IRA Deductibility Limits

    Find out where you can take a tax deduction on the contributions you make.
  5. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  6. Taxes

    Deducting Your Donations

    Generosity may be its own reward, but some charitable giving also provides personal tax benefits.
  7. Taxes

    Tax Deductions You May Be Missing

    Knowing the tax deductions you're entitled to can make or break your bank account.
  8. Taxes

    How To Cut Your Alternative Minimum Tax

    Save yourself money by lowering the amount of tax you owe.
  9. Retirement

    Keep Working Or Stay At Home With The Kids?

    Choosing to stay at home with the kids is a choice that has both positive and negative financial consequences.
  10. Taxes

    Student Tax Breaks

    Education bills may not be as stressful as you think - these student tax breaks can help!
  1. Is dental insurance tax deductible?

    Dental insurance premiums may be tax deductible. To be deductible as a qualifying medical expense, the dental insurance must ... Read Full Answer >>
  2. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>
  3. What are some good free online calculators for AGI (adjusted gross income)?

    Both and offer free online calculators for figuring adjusted gross income, or AGI. Calculations ... Read Full Answer >>
  4. What is the difference between AGI (adjusted gross income) and net income?

    Adjusted gross income, or AGI, is often referred to as "net income," although the two are not necessarily the same thing. ... Read Full Answer >>
  5. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Calculating personal income tax correctly involves understanding two important tax terms: adjusted gross income (AGI) and ... Read Full Answer >>
  6. What assets are taxable and what assets are not taxable?

    Most types of income are taxable by the Internal Revenue Service (IRS). In fact, all income is taxable unless it is specifically ... Read Full Answer >>
  7. How can I avoid paying taxes on my Social Security income?

    Nearly 90% of individuals over age 65 rely on Social Security income to pay for a large portion of living expenses throughout ... Read Full Answer >>
  8. What are the differences among gross income, adjusted gross income and modified adjusted ...

    Taxpayers can ease the pain of preparing tax returns simply by knowing the Internal Revenue Service's (IRS) definitions of ... Read Full Answer >>
  9. Do IRA contributions reduce average gross income (AGI)?

    IRA contributions to a traditional IRA reduce the IRA AGI or adjusted gross income because the qualifying contribution is ... Read Full Answer >>
  10. How are Simplified Employee Pension (SEP) IRAs taxed?

    Simplified employee pension individual retirement accounts are tax-deferred retirement savings plans designed to allow business ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center