Finance
Understanding how to calculate adjusted Gross Income
Published by Gbaf News
Posted on May 24, 2018
3 min readLast updated: January 21, 2026
Global Banking & Finance Review®
Company
Published by Gbaf News
Posted on May 24, 2018
3 min readLast updated: January 21, 2026
Adjusted Gross Income (AGI) is required when we are calculating the amount of income tax that is required to be paid on the requisite payment cycle. Those who are not aware of what AGI is, would fare better to understand this to ensure that they don’t pay extra tax. However, what is important to know is the fact that whether one is required to pay tax or not. It is based on regulations and minimum taxable income, on which the need to pay tax is based upon. However, if one is liable to pay tax, they are privy to certain tax deductions and therefore, their liability shall reduce. Here is a one-way guide to understanding how to calculate adjusted Gross Income –
An Example to Run Through
Assume that Mary earns $200,000 a year and her profession as a teacher enables her to receive an educator expenses deduction of $250. Secondly, she has made investments which have reaped her dividends of around $10,000. She also has student loan interest obligations of $20,000 per year. Therefore, her tax obligation ends up being –
| Items | Amount |
| Income (annual) | $200,000 |
| + Dividends | $10,000 |
| (-) Educator Expenses | ($250) |
| (-) Student Loan Interest Obligations | ($20,000) |
| Taxable Income | $180,750 |
Therefore, in the above example tax rates corresponding to the taxable income of $180,750 is to be charged on the same. It is imperative that professional help is taken before filing returns so that other deductibles are reduced from the income and therefore taxable income is less than before.
Therefore, while it may seem like a simple move to calculate Adjusted Gross Income, it can have certain complications and therefore a close attention has to be paid towards enabling a correct, transparent and hassle-free tax paying process. While the IRS hounds for opportunities to take more tax, it has clearly defined processes towards ensuring citizen welfare for easy filing.
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