Adjusted gross income (AGI) is a variation on an individual’s total income, upon which income taxes are based. AGI is less than a person’s gross income, with the difference coming from a variety of deductions, such as medical expenses, alimony, losses from asset sales, and retirement plan contributions. A complete listing of all available deductions can be found on the website of the Internal Revenue Service. Once AGI has been calculated, exemptions and standard or itemized deductions are applied, which then leads to the calculation of the amount of tax owed.
Tax planning involves close attention to these deductions, in order to reduce AGI to the lowest possible amount.