Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is a measure of income that is calculated from your Gross Income and used to determine how much of your income is taxable. It includes all income sources, such as wages, dividends, Capital gains, and retirement distributions, but excludes specific deductions, known as adjustments to income. AGI is an important figure on your tax return as it influences eligibility for various Tax Credits and deductions.

AGI is calculated using the following formula:

AGI = Gross Income – Adjustments to Income

Examples of Adjustments to Income include:

  • Educator expenses
  • Student loan interest deduction
  • Contributions to traditional IRAs
  • Health Savings Account (HSA) contributions

Case 1: A taxpayer has a Gross Income of $80,000 and qualifies for a student loan interest deduction of $2,500. Their AGI would be:

AGI = $80,000 – $2,500 = $77,500

Case 2: Another taxpayer has a Gross Income of $60,000 and makes a traditional IRA contribution of $5,000. Their AGI would be:

AGI = $60,000 – $5,000 = $55,000