Adjusted Gross Income (AGI)
Your adjusted gross income (AGI) is a special calculation of income that is determined when above-the-line deductions are subtracted from your gross income.
AGI is the most common tabulation of income and is used far more often than gross income or taxable income. Adjusted gross income determines your eligibility for deductions and credits, many of which have a phaseout or a cutoff beyond a certain level of AGI.
Therefore, it is beneficial to get your AGI as small as possible by taking as many above-the-line deductions are you can.
AGI is not, however, the income that determines your tax bracket. In other words, it is not the income on which you will ultimately be taxed. After your AGI is determined, itemized deductions will be subtracted from it to arrive at your taxable income. As the name implies, you are taxed based on your taxable income and not your adjusted gross income.
AGI is also important because the IRS uses it (or a PIN) to authenticate your e-filed return. Make sure to keep last year’s AGI handy when you get ready to e-file your return.