We toss different terms around to describe our incomes, one of which is adjusted gross income, but what exactly is adjusted gross income (AGI), and is it an accurate way to describe what we make?
What is Adjusted Gross Income?
In its simplest form, adjusted gross income, or “AGI”, is the broadest measure of income from all sources, but it’s also reduced by certain expenses. (This is where the term “adjusted” figures into AGI.)
Because the income reduced, and because certain income isn’t taxable, it’s not accurate to say that AGI describes total income in any way.
AGI isn’t really a general description of income so much as it’s a term specific to income taxes.
It’s your income as the Internal Revenue Service sees it and wants us to report it. It is everything that is reported on page one of IRS Form 1040.
But even if it isn’t an objective measure of income, it still has major implications, at least as it relates to income taxes.