See Also:
Financial Ratios
Operating Profit Margin Ratio
Net Profit Margin
Margin vs Markup
Adjusted Gross IncomeAdjusted Gross Income DefinitionAdjusted gross income (AGI) is a taxpayer’s gross taxable income. It consists of total income minus allowable adjustments. These allowable adjustments, also known as “above the line deductions,” reduce the amount of income that is used to calculate limitations on itemized deductions and other deductions and allowances.
Standard or itemized deductions, also known as “below the line deductions,” are subtracted from AGI to compute the taxable income amount. Taxable income is the amount used to calculate the amount of tax that must be paid. When referring to above the line or below the line deductions, adjusted gross income is the line.
Adjusted Gross Income = Total Income – Above the Line Deductions Taxable Income = Adjusted Gross Income – Below the Line Deductions Above the Line DeductionsAbove the line deductions are the allowable adjustments that are subtracted from total income to get adjusted gross income. On page 1 of the 2007 U.S. Individual Income Tax Return Form 1040, these allowable adjustments are lines 23 – 35. Some of these adjustments require further paperwork. Above the line deductions are not itemized.
Above the line deductions include items such as educator expenses, moving expenses, alimony paid, student loan interest, and other items.
Below the Line DeductionsBelow the line deductions are the standard or itemized deductions that are subtracted from adjusted gross income to get taxable income. On page 2 of the 2007 U.S. Individual Income Tax Return Form 1040, standard deductions are given in the left margin. Itemized deductions must be listed on a separate form.
Below the line deductions include items such as charitable contributions, mortgage interest, unreimbursed business expenses, IRA contributions, and other items.
Taxable Income FormulaTaxable Income = Total Income – Above the line Deductions – Below the line Deductions IRS LinkIRS website:
irs.gov2007 U.S. Individual Income Tax Report Form 1040:
irs.gov/pub