Gross income is the total amount you earn before any deductions or taxes. It includes all your income sources, such as:

It’s the big-picture number that shows how much money you’re bringing in. But it doesn’t reflect what you actually take home after taxes and other deductions.

What is adjusted gross income?

Adjusted Gross Income (AGI) is your gross income minus specific deductions, also called “adjustments to income.” These can include things like:

  • Retirement contributions
  • Certain healthcare costs
  • Student loan interest
  • Alimony payments (for agreements made before 2019)

AGI is important because it determines your eligibility for tax credits, deductions, and benefits. It’s also the starting point for calculating your taxable income, giving a more accurate picture of what you actually owe in taxes.

Why should you know your gross income and AGI?

Understanding your gross income and AGI helps with financial planning, tax management, and loan applications. It also ensures you’re filing taxes correctly and taking advantage of any deductions or credits.

Why gross income matters:

  • Gives a full picture of your total earnings.
  • Helps with budgeting and setting financial goals.
  • Determines loan eligibility and borrowing power.

Why AGI matters:

  • Shows your taxable income after adjustments.
  • Affects your eligibility for tax deductions and credits.
  • Helps calculate your final tax bill.

Knowing these numbers makes tax time easier and helps you make smarter financial decisions.

How to calculate gross income

The way you calculate gross income depends on whether you’re an individual or a business.

For businesses:

Gross income for a business is total revenue minus the cost of goods sold (COGS). COGS includes direct costs like materials and labor for producing goods or services.

Gross Income = Total Revenue – Cost of Goods Sold (COGS)

For individuals:

Personal gross income is the sum of all earnings, including wages, salaries, bonuses, rental income, interest, dividends, and self-employment earnings.

Gross Income = Total Earnings + Other Sources of Income

How to calculate adjusted gross income

To find your AGI, take your gross income and subtract any eligible deductions. These might include retirement contributions, student loan interest, and self-employment taxes.

AGI = Gross Income – Eligible Deductions

Once you have your AGI, you can determine your taxable income and figure out what deductions and credits you qualify for.

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