What is 'Adjusted Gross Income - AGI'

Adjusted gross income (AGI) 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).

RELATED TERMS
  1. Gross Earnings

    1. For individuals, the total income earned in a year, as calculated ...
  2. Modified Adjusted Gross Income ...

    The amount of income that determines how much of an individual's ...
  3. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  4. Standard Deduction

    A base amount of income that is not subject to tax and that can ...
  5. Gross Income

    1. An individual's total personal income, before accounting for ...
  6. Taxable Income

    The amount of income that is used to calculate an individual's ...
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

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.
  3. Taxes

    What is Gross Income?

    Gross income is an individual’s total income before taxes and other adjustments are considered.
  4. Investing

    What's MAGI?

    Modified adjusted gross income, or MAGI, is one aspect of a person’s income that is calculated while preparing a tax return.
  5. Taxes

    How To Calculate AGI For Tax Purposes

    The first step in completing your taxes is calculating your adjusted gross income. Here’s how.
  6. Taxes

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  7. Taxes

    New Tax Rules Target The Top Tax Bracket

    The American Taxpayer Relief Act brings about new tax rules for the wealthy that people such as Warren Buffett have been calling for over the last few years.
  8. Financial Advisor

    How to Deduct Medical Insurance Premiums

    An overview of tax breaks for those who pay medical insurance premiums.
  9. Retirement

    65 or Older? Have Elective Surgery THIS Year

    This is the last year in which seniors only have to reach 7.5% of adjusted gross income before they can start deducting medical expenses.
  10. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
RELATED FAQS
  1. What is the difference between AGI (adjusted gross income) and gross income?

    Find out the differences between your annual gross income and your adjusted gross income, or AGI, both of which are calculated ... Read Answer >>
  2. What are some good free online calculators for AGI (adjusted gross income)?

    Learn specific information about adjusted gross income and modified adjusted gross income and where free online calculators ... Read Answer >>
  3. What is the difference between AGI (adjusted gross income) and net income?

    Learn about the differences between adjusted gross income, or AGI, and net income, two terms that are sometimes synonymous ... Read Answer >>
  4. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Understand the difference between adjusted gross income and modified adjusted gross income and the effect each has on personal ... Read Answer >>
  5. What are the differences among gross income, adjusted gross income and modified adjusted ...

    Discover how calculating total taxable income is easier when gross income, adjusted gross income and modified adjusted gross ... Read Answer >>
  6. Where on my 1040 form do I report AGI (adjusted gross income)?

    Learn more about IRS Form 1040 and your adjusted gross income, or AGI, which is the figure the IRS uses to figure your total ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center