What Is Adjusted Gross Income?

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Adjusted Gross IncomeĀ (AGI) is gross income minus tax deductions that are allowable whether or not you itemize deductions on your tax return.

For example, after moving to a new state to teach fifth-grade last year, I deducted moving expenses along with the cost of supplies I bought for the classroom from my total income. Using these deductions lowered my AGI, which resulted in a tax refund.

What Is Gross Income?

Gross income includes income from all sources.

It's the amount of money, typically on a paycheck, before payroll taxes. Total gross income comes from other sources as well. This obviously includes your yearly wages, salary, and bonuses. But it also includes interest, dividends, alimony, pensions and annuities, rental property income, royalties, and any income from operating a business. Also, if you're consistently selling on eBay, Craigslist or other online storefronts, you gain income from profits. Gross income also includes net gains on disposal of assets, such as selling a home or car, or any monies obtained through self-employment, consulting and side jobs.

This list of income that could contribute to total gross income is not complete. Tax software will help you to find all income that needs to be reported to the government by asking questions in the tax interview, or you can ask an accountant for advice.

    How Can I Figure Out My Adjusted Gross Income?

    Adjusted Gross Income is figured on the first page of the U.S. federal tax return, and serves as the basis for the income tax you owe. If you're doing your own taxes, use tax software to automatically calculate AGI and to accurately do other tax calculations as the software walks you through the tax interview.

    Taxable income includes salaries or other employment income, interest and dividends, and long- and short-term capital gains and losses, and other sources of income. The adjustments include certain IRA deductions, moving expenses, and unreimbursed business expenses.

    What Can Reduce Gross Income?

    • Some business expenses, such as supply costs, gas mileage or equipment rental fees.
    • Some moving expenses.
    • College tuition or student loan interest.
    • Contributions to certain retirement accounts.
    • Penalties from financial institutions for early withdrawal of savings.
    • Healthcare savings account deductions.
    • Jury duty pay sent directly to the juror's employer.
    • Alimony paid.
    • Deduction for half the self-employment tax
    • SEP-IRA, SIMPLE IRA and 401(k) deductions for the self-employed