How to Calculate Adjusted Gross Income

Adjusted gross income and its calculation is important to all those who are the resident of USA. All individual businessman has to pay income tax on their adjusted gross income. In India, it is called taxable income. Whether it is AGI in USA or taxable income in India, steps of calculation is almost same.
Following are its steps :

1st Step : To Calculate Your Gross Income 

Whether you are operating a small business or you are providing services, you will have to calculate gross income. Gross income is the excess of sales or revenue over cost of sale or cost of services.

 2nd Step : Adjustments of Other Incomes

You have to add all the incomes from other sources in your gross income. For example, you are getting rent from your commercial places or you are earning income from your investment. You should include all the incomes from different sources in gross income.

3rd Step : Adjustments of Deductions

Deductions means your expenses which are allowed by income tax law of any country. For example, in USA, you can get deduction out of gross total income.

 .... a) All allowed business expenses

 b) personal deduction upto $ 3800.

 c) Standard deduction upto $ 11900 for married person.

 d) Medical expenses in excess of 7.5% of adjusted gross income.

e) State, local, and foreign taxes.

 f) Home mortgage interest.

 g) Contributions to charities.

 h)Losses on non business property due to casualty, and Deductions for expenses incurred in the production of income in excess of 2% of adjusted gross income.

 i) After paying tax, taxpayer can get tax credit for foreign tax and child care expenses.

 For example, you are businessman in USA, your total gross income is $100,000. Your business expenses which are allowed are $ 2000 and other deductions are $ 30000. Your adjusted gross income or taxable income will be

Gross Total Income 


Business expenses  $ 2,000
 Personal deduction $ 3,800
Standard deduction $ 11900
Other Deduction  $ 3,000
Adjusted Gross Income  $79300

 Taxable income In India, you can get deduction of

 a) All allowed business expenses

 b) Deposit fund in PPF or NSC

 c) Contribution in pension fund

 e)Deduction for medical insurance premium 

f)Deduction for medical treatment of dependent disabled

 g)Deduction for medical treatment

 h) Deduction for interest payment on the loan taken for higher education

 I) Deduction for donation under 80 G

 j) Deduction for scientific research or rural development

 k) Other deduction allowed by law

Related : Learn Accounting Step by Step 


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Accounting Education: How to Calculate Adjusted Gross Income
How to Calculate Adjusted Gross Income
Accounting Education
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