Answer
Adjusted gross income is the adjusted income that comes after taking out the adjustments from the gross income. Adjustments are untaxed portions that are not a part of taxable income.
Work Step by Step
As the name suggests, adjusted gross income is the adjusted income out of the gross income. Adjusted gross income is calculated after deducting adjustments from the gross income. It is represented by the formula as
\[\text{Adjusted}\,\text{gross}\,\text{income}=\text{Gross}\,\text{income}-\text{adjustments}\]
Adjustments are untaxed portions that may include alimony payments, tax-deferred plans, interest paid on student loans.
Example: A person gets a job that pays $35 per hour and works for 30 hours per week. Also, the person has rental income of $40 per week. He makes a saving of $25 per week in a tax-deferred retirement plan. Calculate his adjusted gross income.
In order to calculate adjusted gross income, first, calculate the gross income by adding all earnings of a week.
\[\begin{align}
& \text{Gross}\,\text{income}=\left( \text{job}\,\text{pay}\,\text{per}\,\text{week}\times \text{working}\,\text{per}\,\text{week} \right)+\text{rental}\,\text{income} \\
& =\left( \$35\times30\right)+\$40\\&=\$1050+\$40\\&=\$1090\end{align}\]
Then, subtract adjustments, that is, retirement plan saving to find out adjusted gross income.
\[\begin{align}
& \text{Adjusted}\,\text{gross}\,\text{income}=\text{Gross}\,\text{income}-\text{adjustments} \\
& =\$1090-\$25\\&=\$1065\end{align}\]
Hence, adjusted gross income of a person is \[\$1065.\]
