What does the term AGI refer to in tax returns?

The term AGI stands for Adjusted Gross Income. In the context of tax returns, AGI is a crucial metric that represents an individual's total gross income, adjusted by specific deductions allowed by the IRS. This adjusted figure is essential because it determines eligibility for various tax credits and deductions, which can ultimately affect the amount of tax owed or the size of any potential refund.

Adjusted Gross Income is calculated by taking the total income from all sources, such as wages, dividends, and rental income, and then subtracting certain deductions. These deductions may include contributions to retirement accounts, student loan interest, and tuition fees, among others. The result is a figure that reflects the taxpayer's income level after accounting for these adjustments, providing a more accurate picture of their financial situation for tax purposes.

The other options refer to terms that are not commonly used in tax nomenclature or have specific meanings that do not align with how income is treated under tax law. Understanding the role of AGI is critical for anyone preparing to file their taxes or seeking to maximize their tax benefits.