Adjusted Gross Income

AGI is calculated by starting with all sources of income like wages, freelance earnings, dividends, rental income, and more — and subtracting eligible deductions such as student loan interest, contributions to a traditional IRA, self-employment taxes, and health insurance premiums for the self-employed. The resulting number is used as the baseline for calculating your actual taxable income after further standard or itemized deductions are applied.

A lower AGI is generally better, as it can make you eligible for more tax credits and deductions, reduce the amount subject to certain surcharges, and lower your overall tax liability.