Adjusted Gross Income
What is a Adjusted Gross Income
An accounting measure employed by the IRS to help determine tax a wage earner’s liability. AGI = earned income + investment income (Portfolio income) + capital gains + net passive income. Once the adjusted gross income is determined, the wage earner may take deductions from this to calculate their tax liability.
SecuritiesCE Explains Adjusted Gross Income
In the U.S the income tax code provides for a progressive tax on earned income. As the amount of income earned by a person increases the rate at which the income is taxed also increases. The IRS allows taxpayers to take a variety of deductions against their adjusted gross income. Items such as contributions to a traditional IRA and home mortgage interest tax deductions are just two of the deductions that may be taken. A taxpayer with a net capital loss may carry the loss forward indefinitely and may use that loss to offset future capital gains. Net capital losses can be deducted against earned income at a standard rate of $3,000 per year.