Definition:
Adjusted Gross Income (AGI) is a key financial metric used in the United States to calculate federal income tax liability. It is calculated by subtracting certain adjustments from your gross income.
These adjustments can include:
- Contributions to retirement plans: Contributions to traditional IRAs, 401(k) plans, and other retirement accounts.
- Education expenses: Deductions for tuition, fees, and other education expenses.
- Moving expenses: Deductions for moving expenses under certain circumstances.
- Business expenses: Deductions for business expenses if you are self-employed.
- Alimony payments: Deductions for alimony payments made to a former spouse.
Why is AGI important?
- Tax calculation: Your AGI determines your eligibility for various tax deductions and credits.
- Income limits: AGI is used to determine income eligibility for many government programs and benefits.
- Tax planning: Understanding your AGI can help you make informed decisions about tax planning and deductions.
In essence, AGI is a crucial financial metric that affects your federal income tax liability and eligibility for various government programs.
