Posted by Fred Lake

What Is Meant By Adjusted Gross Income

What Is Meant By Adjusted Gross Income

Taxpayers need to know what is meant by Adjusted Gross Income (AGI) when filing their tax returns regardless whether using standard or itemized deductions. A simple explanation is that AGI is gross income minus allowable tax deductions. 

Adjustments to your gross income may include moving expenses incurred because of relocating for your career. You may even be able to use incidental costs associated with it as well. For instance, school teachers who purchase classroom supplies can use that expense as a deduction.

Such deductions can result in a reduction in your adjusted gross income and can lead to a refund on your taxes.


Gross Income

Gross income refers to the total amount of income received. This is not what is typically found on a paycheck though, but you can find a portion of that amount on your paystub. What is on your paycheck is your net income from a job which is derived at after all the withholdings are subtracted from your gross earnings, but there is more. 

Job bonuses, dividends, interest from savings, income from rental property, annuity payments, royalties and other income all combine to make up your gross income. Any goods you may have sold through a variety of sources must also be included in calculations of gross income. That means if you made a profit from selling goods online through eBay, Craigslist or an online storefront, this will be added to your gross income. Net gains from selling a car, house or other assets, or side jobs such as consulting or self-employment must also be included. 

As you can see, there are many things that can be considered taxable income other than wages or a salary, and the list is quite extensive as to what can be included. For instance, if you drive for Uber on your days off or after work, this income is also included. Even so, you might want to consider getting some help in determining exactly what you should or should not include. 


What Is Considered Income?

Since there can be some misunderstandings about what should be considered income, you may want to get some help figuring that out. Tax software is beneficial in this effort and so is asking a tax accountant professional for their advice. It is highly recommended that you do everything possible to report all income to the government.


Figuring Adjusted Gross Income

The first page of the United States federal tax return is where your adjusted gross income is figured. This very important page forms the basis for the amount of income tax owed by each taxpayer. Consider using tax software that calculates your tax burden automatically if you are doing your own tax return. That way you can avoid mathematical errors. 


Things That Can Reduce Your Gross Income 

When filling out your income tax return, it is important to know what things can be used to gross income. Here is a list of possibilities.

• Alimony payments

• Healthcare savings account deductions

• Career related moving expenses

• Student loan interest or college tuition

• Expenses related to running a small business, such as gas mileage, rental fees for equipment and supplies

• Some retirement account contributions

• Pay for jury duty sent to your employer

• Penalties incurred for early savings withdrawal

Don't get your gross income mixed up with net income. Net income is the amount of your actual take home pay after all the payroll withholdings have been deducted.

Fred Lake
Contact This Member