Adjusted gross income (AGI) is your gross income minus certain payments you have made during the year.
Adjusted gross income is a number that the IRS uses as a basis to help calculate how much you owe in taxes. The IRS defines AGI as gross income, minus adjustments to that income.
You can determine your AGI by calculating your annual income from wages and other income sources (gross income), then subtracting certain types of payments, such as student loan interest, alimony, retirement contributions, or contributions, you’ve made during the year.
Once you have your adjusted gross income, you can use that number to determine your taxable income by taking either the standard deduction or itemizing to further reduce your liability. Your AGI can also help you figure out which might be able to save you money.
How to calculate adjusted gross income
In general, the formula for calculating AGI starts with determining your gross income. Gross income includes money earned from most sources:
- Jobs.
- Investments.
- Social Security.
- Pensions.
- Businesses.
- Real estate.
- Farms.
You can then subtract the following from your gross income:
- Educator expenses (books, supplies, equipment).
- Certain business expenses.
- Deductible HSA contributions.
- Moving expenses for military members.
- Deductible self-employment taxes.
- Contributions to retirement plans (e.g., SEP, SIMPLE) or health insurance for self-employed people.
- Penalties on early withdrawals of savings.
- Alimony paid.
- Deductible IRA contributions.
- Student loan interest.
- Deductible tuition and fees.
If you use a tax pro, they will calculate your AGI as they prepare your tax return.