Tax Glossary
Key Tax TermAGI (Adjusted Gross Income)
Adjusted Gross Income (AGI) is your total income for the year, minus certain allowed adjustments. It's one of the most important numbers on your tax return because many credits, deductions, and tax limits are based on your AGI.
💡Simple definition
AGI is your income after some basic adjustments, but before most deductions and credits. It starts with your total income (wages, interest, business income, etc.) and then subtracts certain items like some retirement contributions, student loan interest, or self-employed health insurance.
⭐Why AGI matters
The IRS uses your AGI as a starting point to figure out:
- ✓Whether you qualify for certain tax credits
- ✓Whether you can take certain deductions
- ✓How much of a deduction or credit you can claim
In short: AGI controls a lot of what you can and can't do on your tax return.
🧮Quick example
Imagine you have:
- •$60,000 in wages (from your W-2)
- •$500 in bank interest
- •$2,000 in student loan interest you paid
Step 1: Add your income
Wages $60,000 + Interest $500 = $60,500 total income
Step 2: Subtract allowed adjustments
Subtract $2,000 of deductible student loan interest.
Result: Your AGI
$60,500 − $2,000 = $58,500
📄Where do I see my AGI?
On your federal tax return, AGI is shown on Form 1040. The line number can change from year to year, but it is always labeled as "Adjusted Gross Income".
Tax software often asks for last year's AGI to verify your identity when you e-file your return.
🎯How AGI affects your taxes
A lower AGI can help you qualify for:
- ✓Certain tax credits (like the Child Tax Credit or education credits)
- ✓Medical expense deductions (above a percentage of AGI)
- ✓Other deductions or phase-out limits based on income
That's why contributing to retirement accounts or taking other above-the-line deductions can be powerful—they reduce your AGI and may unlock more tax benefits.
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