Adjusted gross income ("AGI") represents your total income reduced by certain deductions known as "adjustments," but before you take your itemized deduction or standard deduction, and before you take the deduction for your exemptions. Adjusted gross income is determined by subtracting the following from gross income:
- Alimony paid
- Penalties on early withdrawal of savings
- Payments to an IRA (reduced proportionately based upon adjusted gross income levels if taxpayer is an active participant in an employer maintained retirement plan)
- Payments to a Keogh retirement plan
- Self-employed health insurance payments
- Moving expenses.