What Is Adjusted Gross Income
If this is your first time doing your own taxes, you might be wondering, what is adjusted gross income? Adjusted gross income is essentially your total annual income that is taxable by the government. Your adjusted gross income is determined by adding all of your annual income and then subtracting any allotted deductions and tax credits from the total amount of your income. Your adjusted gross income is also sometimes referred to as your net income.
Your taxable income used in calculated your adjusted gross income includes standard items like your salary, investments, taxable interest, or most other payments you receive. You also have to include payments received from alimony; unemployment compensation; rental real estate; royalties, partnerships, corporations and trusts; farm income; and any taxable Social Security benefits. Your adjusted gross income also includes taxable refunds, credits, or offsets in income tax. Adjusted gross income is used when calculating your tax liability, or taxes that you owe, and determining which tax bracket you belong to. Your adjusted gross income is also used to determine the tax credits you qualify for.
Common deductions from your adjusted gross income include qualified IRA contributions, student loan interest, qualified moving expenses (i. e. if you moved to be closer to your job), one-half of self-employment tax, self-employed health insurance contribution, contributions to SEP, SIMPLE and other qualified plans for yourself. Other deductions from your adjusted gross income can include alimony you paid, deductions for Archer Medical Savings Accounts, and penalties paid on early withdrawal of savings.