Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Adjusted gross income (AGI) is your total gross income minus specific "above-the-line" deductions such as IRA contributions, student loan interest, and self-employment tax. AGI appears on Line 11 of Form 1040 and serves as the gateway to many tax benefits, credits, and deduction phase-outs.
Formula
AGI = Gross Income − Above-the-Line DeductionsExample
A freelancer earns $95,000 in gross income and contributes $6,500 to a traditional IRA and pays $6,700 in self-employment tax deduction, bringing AGI down to $81,800.
Why It Matters for Your Business
Your AGI determines eligibility for many tax credits and deductions—lowering it through legitimate above-the-line deductions can unlock significant tax savings.
Practical Tips
- •Maximize above-the-line deductions like retirement contributions and HSA deposits to lower your AGI.
- •Check how your AGI affects eligibility for credits like the Earned Income Tax Credit.
Related Terms
More Taxes Terms
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
Estimated Taxes
Quarterly tax payments made by self-employed individuals and businesses.
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