Adjusted gross income

Definition

Adjusted Gross Income (AGI) is an individual's total gross income minus specific deductions, known as adjustments. It is used to determine taxable income and eligibility for certain tax credits and deductions.

5 Must Know Facts For Your Next Test

1. AGI includes wages, dividends, capital gains, business income, and other forms of income.
2. Common adjustments to income include contributions to retirement accounts, student loan interest, and tuition fees.
3. AGI is calculated before taking the standard or itemized deductions.
4. Certain tax credits and benefits phase out at higher levels of AGI.
5. AGI is a crucial figure in determining eligibility for various tax credits such as the Earned Income Tax Credit (EITC) and child tax credit.

Review Questions

• What types of income are included in AGI?
• Name three common adjustments that can reduce your AGI.
• Why is AGI important in determining eligibility for certain tax credits?

Related terms

Gross Income: The total income from all sources before any deductions or taxes.

Taxable Income: The portion of your income that is subject to federal income tax after all deductions and exemptions.

Standard Deduction: A fixed dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status.