Gross Income vs. Adjusted Gross Income vs. Taxable Income
Understanding the Tax Calculation
Gross income is only the starting point of the tax calculation. Adjustments reduce gross income to arrive at Adjusted Gross Income (AGI), while deductions reduce AGI to determine taxable income.
Note
Many deductions and credits are based on AGI, making it one of the most important figures on an individual tax return.
Summary
Understanding the progression from gross income to taxable income is essential for all later tax calculations.