In the world of personal finance and taxation, Adjusted Gross Income (AGI) is a fundamental concept that serves as a cornerstone for various financial calculations and decisions. AGI is a key indicator of an individual’s or household’s financial situation, and it plays a crucial role in determining tax liability, eligibility for certain deductions, and even access to financial assistance programs. Let’s delve into what AGI is and how it is used in practical scenarios. AGI is a measure of an individual’s total income from various sources minus specific deductions that are allowed by the Internal Revenue Service (IRS). These deductions are often referred to as “above-the-line” deductions because they are subtracted before calculating the individual’s taxable income. AGI is arrived at by subtracting allowable deductions from an individual’s total gross income, which includes wages, interest, dividends, rental income, and other sources of income. Uses of AGI: Determining Tax Liability: AGI is a pivotal factor in calculating an individual’s federal and state income tax liability. The IRS uses AGI to establish the starting point for calculating how much of an individual’s income is subject to taxation.