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Gross income is all income before deductions, while taxable income is that portion of income subject...

Gross income is all income before deductions, while taxable income is that portion of income subject to tax. When is gross income equal to adjusted gross income (AGI)? Why is AGI such a significant number?

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Answer #1

Gross income reduced by certain deductions derives AGI. These deductions are:

Educator expenses
Business exp
HSA 8889
Moving 3903
Deductible self employment tax
SEP SIMPLE qualified plans
SE health insurance
Penalty early with savings
Alimony paid
IRA contributions
Student loan interest
Tuition fee 8917

Domostic production 8903

After reducing gross income by above deductions, AGI comes. Based on AGI several deductions are calculated. personal exemptions and itemized deductions phases out based on AGI level. Within itemized deductions medical deductions, business expenses, casualty loss deduction are subject to AGI floor limitation.

Several other credits such as education credits, dependent care credit, child tax credit, retirement savers credit are also based on AGI.

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