Adjusted gross income is a tax term everyone should understand. Also known as AGI, it has ramifications that extend beyond the tax season.
“People are asking you all the time for your adjusted gross income,” says Paul Joseph, an attorney and CPA with Joseph & Joseph Tax & Payroll in Williamston, Michigan.
Not only does it affect how much you pay in taxes, but it may also be the basis for decisions about eligibility for assistance programs and loans.
Keep reading for everything you need to know how the AGI is calculated and ways to reduce it.
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READ: Tax Prep Checklist: Collect These Forms Before Filing Your Taxes. ]
What Is Adjusted Gross Income, or AGI?
The IRS defines adjusted gross income as “gross income minus adjustments to income.” It’s a number that is included on your federal tax form, and many states use it for their own income tax calculations.
“Before you take any deductions or credits, you have your AGI,” explains Edward Renn, a partner on the private client and tax team of international law firm Withers.
Almost all forms of income – except municipal bond interest – are factored into the AGI. There is also a long list of exclusions to the AGI. Those are items that can be deducted to lower a person’s adjusted gross income. Both income and exclusions are spelled out on the Schedule 1 tax form.
