Adjusted gross income refers to the taxable income of an individual under the US taxation system. This figure can be derived from the actual gross income minus the deductibles that are allowed under US tax filing laws. Â These deductibles may include some expenses related to the individual’s business, moving expenses, and expenses for child support among many others.
When filing income tax returns, all earnings of an individual must be declared to the US IRS or Internal Revenue Service. For employed individuals, income from employment such as wages, bonuses, and commissions will be declared as part of the actual gross income. For people engaged in various businesses, income from sales and operations are part of the gross income. Â Â A person’s share in business partnerships and even tax refunds shall also be declared as total gross income. Â The total figure for the gross income will then be reduced with various deductions that are allowable under US taxation. Â With allowed deductions, individual taxpayers across the US typically declare in detail various deductions in order to reduce their total gross income and come up with the adjusted gross income. This adjusted figure will become the basis for the income tax computation. Â The more deductions are declared, the lower will be the figure for adjusted gross income and this will ultimately result to lower tax liability.
Under US taxation law, individual taxpayers may also opt to avail of the standardized deductions for their income. This simply means that a specific amount of deduction may be filed to be reduced from the total gross income. Â This specific or standardized deduction is based on the age of the taxpayer and the filing status. Â Deducting the standard amount from the total gross income will then yield to the adjusted gross income. Â Aside from being the basis for an individual’s tax liability, this figure is also often used by other organizations and financial institutions in terms of giving approvals for housing loans and credit lines.