Legal Definitions - adjusted gross income (AGI)

Adjusted Gross Income (AGI) is the amount of income an individual earns after certain adjustments are made to their gross income. Gross income includes all the money an individual earns from various sources such as wages, dividends, capital gains, business income, and retirement distributions.

Adjustments are made to the gross income to arrive at the AGI. These adjustments include deductions for things like student loan interest, alimony payments, and retirement savings. The AGI is important because it determines an individual's income tax liability for the year.

For example, if an individual earns $50,000 in gross income but has $5,000 in deductions for student loan interest and retirement savings, their AGI would be $45,000.

The AGI also affects the extent to which certain expenses can be deducted, such as medical expenses, nonbusiness casualty and theft losses, and charitable contributions.