Adjusted Gross Income Definition

Adjusted Gross Income Definition

See Also:
Financial Ratios
Operating Profit Margin Ratio
Net Profit Margin
Adjusted Gross Income
Margin vs Markup

Adjusted Gross Income Definition

The adjusted gross income definition (AGI) is a taxpayer’s gross taxable income. It consists of total income minus allowable adjustments. These allowable adjustments, also known as “above the line deductions,” reduce the amount of income used to calculate limitations on itemized deductions and other deductions and allowances.
Subtract standard or itemized deductions, also known as “below the line deductions,” from AGI to compute the taxable income amount. Taxable income is the amount used to calculate the amount of tax that must be paid. When referring to above the line or below the line deductions, adjusted gross income is the line.
Adjusted Gross Income = Total Income – Above the Line Deductions
Taxable Income = Adjusted Gross Income – Below the Line Deductions

Above the Line Deductions

Above the line deductions are the allowable adjustments subtracted from total income to get adjusted gross income. Then on page 1 of the 2007 U.S. Individual Income Tax Return Form 1040, these allowable adjustments are lines 23 – 35. Furthermore, some of these adjustments require further paperwork. But do not itemize above the line deductions.
Above the line deductions include items such as educator expenses, moving expenses, alimony paid, student loan interest, and other items.

Below the Line Deductions

Below the line deductions are the standard or itemized deductions subtracted from adjusted gross income to get taxable income. Then on page 2 of the 2007 U.S. Individual Income Tax Return Form 1040, find standard deductions in the left margin. Furthermore, you must list itemized deductions on a separate form.
Below the line deductions include items such as charitable contributions, mortgage interest, unreimbursed business expenses, IRA contributions, and other items.

Taxable Income Formula

Use the following taxable income formula:

Taxable Income = Total Income – Above the line Deductions – Below the line Deductions

adjusted gross income definition

IRS website: irs.gov
2007 U.S. Individual Income Tax Report Form 1040: irs.gov/pub

Related Blogs
Does your Accounting Department Produce Net Income?

Coaching the Entrepreneur: Learn how to know what you don’t know. How much should I spend on accounting for my company?     I have been in the accounting profession for 32 years, and for the last 6 years, I’ve owned my own consulting firm to assist companies with accounting challenges. There is one common theme that I

Read More »
Near Sourcing vs. Outsourcing: The Key to Cost-Effective Accounting Solutions

In this insightful interview, Dan sheds light on the critical role of accounting in business growth and success. Uncover the common pitfalls business owners face when overlooking accounting and how it can hinder access to loans and financial opportunities. Learn why good financial statements are vital for decision-making and attracting investors. With the NearSourcing model,

Read More »
Is Mexico the New China?

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

Read More »
WIKI CFO® - Browse hundreds of articles
Skip to content