What is 'adjusted gross income'?

Adjusted gross income (AGI) refers to gross income with specific deductions subtracted. These deductions can include items such as educator expenses, student loan interest, retirement plan contributions, and certain business expenses for self-employed individuals. The significance of AGI lies in its use as a starting point for calculating taxable income, determining eligibility for various tax credits and deductions, and influencing phase-outs of benefits and tax advantages.

By arriving at AGI, taxpayers can better understand their taxable income and how factors such as age or filing status might affect their overall tax situation. Consequently, deductions that reduce gross income are critical in calculating AGI, making this option the most accurate definition.