Articles · Basics · Individual Income Tax and Form 1040
Gross Income, AGI, and Taxable Income: What's the Difference?
Gross income, adjusted gross income, and taxable income are three stages of the same calculation. Each is used for a different purpose on the return.
Gross income
Section 61 defines gross income as all income from whatever source derived, unless the law excludes it. Wages, interest, business profit, and gains count. Examples of exclusions include most gifts, inheritances, and life insurance proceeds paid on death.
Adjusted gross income
AGI is gross income minus specific above-the-line adjustments, such as deductible IRA contributions, student loan interest, and half of self-employment tax. AGI matters because many credits and deductions phase out as it rises.
Taxable income
Taxable income is AGI minus the standard or itemized deduction and, where eligible, the qualified business income deduction. Tax brackets apply to this figure.
For example, suppose a taxpayer has $90,000 of gross income, $5,000 of adjustments, and a $15,000 deduction. AGI is $85,000 and taxable income is $70,000. The tax calculation starts from the $70,000.
Key takeaways
- Gross income is the broadest measure.
- AGI controls many phase-outs.
- Tax brackets apply to taxable income.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.