DayCents

Adjusted Gross Income (AGI)

Adjusted gross income is your total income minus specific 'above-the-line' adjustments like traditional IRA contributions, student-loan interest, and HSA deposits. It's a key figure on your tax return because many deductions, credits, and eligibility limits are based on it.

AGI sits between gross income and taxable income: subtract the standard or itemized deduction from AGI and you have the figure the brackets apply to. What makes AGI worth managing is that it is the gatekeeper for a long list of income-limited provisions — Roth contribution eligibility, the traditional IRA deduction, education and child-related credits, and the medical-expense threshold all key off AGI or a modified version of it. So a pre-tax 401(k) or HSA contribution does two things at once: it cuts the tax on the amount contributed, and it can pull you back under a threshold that restores a credit worth more than the deduction itself. Deductions taken before AGI are the valuable kind.