What is Adjusted Gross Income (AGI)?

2 min readPublished Jan 24, 2024

Learn what Adjusted Gross Income (AGI) is, how it's calculated, and its significance in tax planning and financial management.

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Adjusted Gross Income (AGI) is a key term in tax planning, representing an individual’s total gross income minus specific deductions. It’s a crucial measure used by the IRS to determine how much of your income is taxable.

Understanding AGI

AGI is the starting point for calculating your tax liability. It includes all sources of income, such as wages, dividends, and capital gains, then adjusts for certain deductions.

Components of AGI

  • Income: Wages, salaries, bonuses, business income, rental income, interest, and dividends.
  • Adjustments: Deductions such as retirement plan contributions, student loan interest, alimony payments, and educator expenses.

Calculating Your AGI

To calculate AGI, start with your total income from all sources and subtract the allowable deductions. These deductions are specific and are different from standard or itemized deductions that are subtracted from AGI to determine your taxable income.

Importance of AGI in Financial Planning

  • Tax Planning: AGI is a threshold for many tax credits and deductions.
  • Eligibility for Financial Aid: AGI often determines eligibility for scholarships and student loans.
  • Retirement Planning: AGI influences IRA contribution limits and deductions.

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