Adjusted Gross Income

Gross income is what you pay tax on. You then strip out or reduce it by adjustments to income. These include expenses associated with the business, losses on the sale of certain property and contributions to a retirement plan. That ultimately results in your adjusted gross income or AGI which is a formally defined term on the tax return. It's not yet what you ultimately pay tax on against youradjusted gross income. Then there are deductions that can be taken as well called standard deduction or itemized deductions. The common potential itemized deductions are unreimbursed to medical or dental expenses but only if they're more than 7.5%.