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TeachMeFinance.com adjusted gross income (AGI) -- The income of an individual or couple that serves as the base for calculating federal income tax. AGI is worked out by deducting from gross income any uncompensated business expenditure and making other permissible adjustments, such as for Individual Retirement Accounts, rent and royalty expenses, 50% of self-employed tax liability, alimony payments, forfeiture of interest penalties, health insurance deductions, and capital loss deductions up to $3,000. AGI is income that is inclusive of both taxes (state, local and real estate) and listed deductions such as for medical outlays. These deductions are not permitted if AGI surpasses specific income thresholds that are adjusted upwards on a yearly basis. The gradual termination of itemized deductions is set to be revoked in a phased manner beginning from 2006. another definition... adjusted gross income (AGI) -- All income subject to taxation under the individual income tax after subtracting "above-the-line" deductions, such as certain contributions for individual retirement accounts and alimony payments. Personal exemptions and the standard or itemized deductions are subtracted from AGI to determine taxable income. About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.