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What is an Adjusted Gross Income?

Deductions, like job-related moving expenses, reduce the amount of taxable income.
Tax forms provided by the Internal Revenue Service (IRS) help taxpayers calculate their adjusted gross income.
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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 September 2014
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In the United States, a taxpayer's adjusted gross income (AGI) represents that individual's taxable earnings less allowed deductions. It represents the income tax liability for that taxpayer, and taxes are assessed on the basis of this number, after standardized deductions. Certain benefits such as eligibility for social services are also determined on the basis of adjusted gross income. Tax forms provided by the Internal Revenue Service (IRS) are used to calculate this sum, and many American taxpayers are familiar with the process.

When a taxpayer fills out an income tax form, he or she lists all sources of taxable income from the year. These sources of income include employment, proceeds from stock sales, and capital gains from selling real estate, among others. Totaled, they add up to the taxpayer's “gross income.” Once the taxpayer has listed all of his or her sources of income for the year, the AGI is calculated. Certain business expenses, payments into retirement accounts, moving expenses, child support, interest paid on student loans, and child support may all be deducted directly from the gross income to yield an adjusted gross income.

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Next, the taxpayer is allowed to take certain standardized deductions. They may choose to itemize deductions, or to take a “standard deduction,” a flat sum of money which is based on the filer's age and filing status. Once this process is complete, the taxpayer winds up with a number which indicates his or her total income tax liability. Using a tax schedule, the taxpayer determines how much tax he or she owes.

Since a taxpayer's adjusted gross income reduces total tax liability, many taxpayers try to take as many deductions as possible. They may also itemize deductions after calculating the AGI, in an effort to reduce the total amount of tax that they owe. The IRS is well aware of both of these tactics, so it scrutinizes tax forms very carefully. Taxpayers should keep this in mind when they make deductions, and they should take care to keep receipts and other documentation on hand for all deductions they plan to claim.

The adjusted gross income is also important because it is used by numerous organizations to make decisions such as approving a mortgage application, offering a line of credit, or allowing a taxpayer to receive government assistance. Since the sum is the basis of decisions for many basic benefits, taxpayers generally keep a copy of their taxes on hand, so that they have it readily available.

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ddljohn
Post 4

@turkay1-- I've had to figure out my adjusted gross income on my own several times as well. You can calculate it but I think it gets a bit tricky if you own a personal business, have a lot of deductions or if you have to figure out your total gross income yourself.

If you have your total gross income, it's really easy because all you have to do is to subtract your deductions from the total gross income to get your adjusted gross income. If you are a business, you will have to figure out your total income yourself by adding all your profit and subtracting costs.

Although it's possible to do it this way, there are actually free adjusted gross income calculators online. You can put in all of your information and it will tell you what your AGI is. I've used it twice, it's really easy and accurate.

candyquilt
Post 3

@SarahSon-- That's so true. After I did my taxes, I would store away all my forms and print-outs thinking that I wouldn't need it again until next year. But it's required for a lot of forms, especially loan forms.

I have fluctuating income and need to fill out forms regularly to have my student loan payment changed. They require me to state my adjusted gross income for that.

I actually have a job right now where I work from home. I don't have W-2 forms for this job where my adjusted gross income is clearly stated. I have no idea how I'm going to find that amount and I might need to submit another form again soon.

Does anyone know how to calculate adjusted gross income?

julies
Post 2

After several years of paying someone to do my taxes, I decided to use one of the online programs and figure them myself.

These are really simple for people who don't need to itemize, but I was surprised how easy it was for me too.

We have several deductions, so it is always to our advantage if we itemize these. By doing the taxes myself, I have a much better picture of our finances, and am able to understand the whole tax process better.

It is always a good idea to know what your adjusted gross income is. If you are doing your taxes online and want to e-file, you always need to know what the AGI was for the previous year. This way they know the current tax form matches up with the previous ones.

For example, if you were filing your taxes online for 2010, they would ask you for your 2009 adjusted gross income amount.

SarahSon
Post 1

When I get my tax forms back from the preparer, I always try to keep them handy because you never know when something is going to come up when you need them.

We just refinanced out mortgage, and they asked for a copy of our tax records during this process. When they look at the federal adjusted gross income, this gives them an idea if you can afford the loan payments or not.

They look at several other factors in addition to the adjusted gross income, such as your debt, and years at your job, but this AGI figure is usually the first thing they look at.

It is always listed on the first couple pages of your tax return. You don't have to make copies of the whole return, just those first pages which summarize your tax situation for the previous year.

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