Q:

How do you calculate AGI?

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Quick Answer

Adjusted gross income, or AGI, is calculated by subtracting allowable deductions from gross income, as specified by the U.S. Internal Revenue Code. For taxpayers meeting annual federal income tax obligations, AGI is calculated on the first few lines of a federal income tax return form, such as Form 1040.

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Full Answer

Gross income includes a taxpayer's wages from employment, any income from self-employment, taxable interest and dividends, rental income, capital gains, alimony, and any other monetary payment received in a tax year that is not exempt from total income by the Internal Revenue Service, according to the Intuit TurboTax website. To determine AGI, a person subtracts all deductions or adjustments to gross income allowed by the IRS in a tax year, typically including expenses incurred running a business, unreimbursed expenses incurred by some types of employees, moving expenses related to starting a new job, student loan interest payments, alimony payments and contributions to certain types of retirement accounts. The IRC sets the general guidelines for adjustments to gross income, but the IRS establishes the specific adjustments that are allowed, and these may change from year to year.

AGI is the first calculation on any federal tax return, because it establishes a taxpayer's taxable income. In 2012, AGI was listed on line 4 of Form 1040EZ, line 21 of Form 1040A and line 37 of Form 1040, according to the IRS.

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