What does Adjusted Gross Income (AGI) represent?

Adjusted Gross Income (AGI) represents a taxpayer's total gross income with specific deductions subtracted from it. This calculation serves as an important baseline for a variety of tax evaluations, including further deductions and credits. By taking gross income and deducting specific allowable adjustments—such as contributions to retirement accounts, tuition and fees, or student loan interest—taxpayers arrive at their AGI.

This amount is critical because it affects eligibility for numerous tax credits and deductions. For instance, certain tax benefits may phase out at specific AGI thresholds. Therefore, knowing the AGI is essential for taxpayers when assessing their overall tax liability and when planning for future tax considerations. The other options do not correctly define AGI, as they either misstate the calculation or reference concepts related to tax credits rather than the adjustment process that defines AGI itself.