What is adjusted gross income (AGI)?

Adjusted gross income (AGI) is the amount of income used to determine how much of your income is taxable. It is calculated by taking your total income and subtracting certain specific deductions, which are often referred to as "above-the-line" deductions. These deductions can include items such as contributions to traditional IRAs, student loan interest, and certain business expenses, among others.

The focus on specific deductions is crucial because these adjustments are used to lower your taxable income before applying either the standard or itemized deductions. This makes AGI a key figure in tax calculations, as it not only influences your tax liability but also affects eligibility for various credits and deductions. Understanding AGI is essential for tax planning, as it impacts how much tax you will owe and which deductions you can claim on your tax return.