AGI is a financial term used in taxation that represents an individual’s or a household’s gross income after accounting for specific allowable adjustments. These adjustments are recognized by the Internal Revenue Service (IRS) and are used to determine an individual’s income tax liability for the year. Allowable adjustments from gross income may include deductions for business expenses, student loan interest payments, and other eligible costs.
After calculating AGI, a taxpayer can then apply deductions to further reduce their taxable income, which is the basis for determining the amount of income tax owed to the IRS. AGI serves as an important intermediate step in the process of calculating an individual’s or household’s federal income tax liability.