Definition
Adjusted gross income is your total income from all sources minus specific adjustments allowed before deductions.
How It Works
You start with gross income, including wages, business income, interest, dividends, and capital gains, then subtract above-the-line adjustments such as retirement plan contributions, health savings account contributions, and the deductible part of self-employment tax. The result is AGI, which is the figure many other tax calculations are based on.
Example
Someone with $250,000 of gross income who contributes $30,000 to retirement and HSA accounts and pays deductible self-employment tax might land at an AGI well below their gross income.
Who It Applies To
Every individual taxpayer.
Watch-Outs
AGI drives eligibility for many credits, deductions, and thresholds, including the income limits on Roth contributions and the Net Investment Income Tax, so lowering AGI can unlock benefits that phase out at higher income.
