what is agi

AGI stands for Adjusted Gross Income, which is a term used in the United States income tax system. It is calculated by subtracting specific deductions, or adjustments, from an individuals total gross income. The resulting figure is used to calculate taxable income, which is AGI minus allowances for personal exemptions and itemized deductions. AGI is more relevant than gross income for most individual tax purposes. Certain tax calculations are based on modified versions of AGI, and many states base state income tax on AGI with certain deductions. Some common examples of deductions that reduce AGI include deductible traditional IRA contributions, health savings account contributions, and educator expenses. AGI can directly impact the deductions and credits an individual is eligible for, which can reduce the amount of taxable income reported on their tax return.