What is the definition of "adjusted gross income" (AGI)?

Adjusted Gross Income (AGI) is best defined as total income minus specific deductions, which is critical for determining tax liability. AGI includes a wide array of income sources, such as wages, dividends, and retirement distributions, but certain deductions, often referred to as "above-the-line" deductions, are subtracted from this total. These deductions may include retirement plan contributions, student loan interest, and alimony paid, among others.

AGI serves as a baseline for many tax calculations, influencing eligibility for various credits and deductions, and it is pivotal in determining your overall taxable income. By establishing AGI, taxpayers can identify their modified taxable income, which is a critical factor in calculating their final tax obligations and determining their eligibility for further deductions or credits that have AGI thresholds.

The other choices do not accurately capture the definition of AGI. For example, simply subtracting personal expenses from total income doesn’t reflect the specifics of tax-deductible expenses recognized by the IRS. Similarly, income after tax credits indicates a post-tax scenario rather than the pre-tax net calculation inherent in AGI determination. Lastly, revenue generated from selling assets relates to capital gains and does not encompass the broader definition of AGI, which includes various income sources and allowable deductions