what is Adjusted Gross Income (AGI)

**Adjusted Gross Income (AGI) is a critical component in determining an individual's taxable income and eligibility for specific tax credits and deductions.** Here's a detailed breakdown: 1. **Definition and Importance**: - Adjusted Gross Income (AGI) is the total income earned from various sources, minus specific deductions permitted by the IRS. - It is crucial for calculating taxable income, determining tax liability, and assessing eligibility for tax credits and deductions. 2. **Gross Income vs. AGI**: - Gross income includes all income from whatever source, such as wages, dividends, capital gains, and more. - AGI is derived by subtracting certain adjustments or deductions from gross income. 3. **Calculating AGI**: - To calculate AGI, you must report all sources of income on Form 1040. - Then, subtract eligible deductions, such as educator expenses, student loan interest, alimony payments, and retirement contributions. 4. **Impact of AGI**: - AGI influences tax rates and the amount of taxes owed. - It also affects eligibility for tax credits and deductions, with some having AGI limitations. 5. **Understanding AGI for Financial Planning**: - Knowing your AGI helps in informed financial planning and ensures tax compliance. - It is essential for calculating taxable income and determining the final tax liability. In conclusion, AGI is a key figure in the tax landscape, providing a clear picture of an individual's taxable income and eligibility for various tax benefits. Accurate calculation and understanding of AGI are vital for managing tax liabilities and maximizing tax benefits.