What is the difference between Taxable Income and Adjusted Gross Income?

When you say taxable income, this stands for adjusted gross income also known as AGI. Gross income is known to be the starting point that will be based on the calculations of the IRS. This means that this is based on the income from the various sources before all of the deductions will be made. This means that the income will come from tips, salaries, and so much more.

Taxable income usually starts with gross income and then there will be some deductions that will be made so that you can get the type of income that you will be taxed on. If you would like to know more about marginal tax rates and tax brackets, these will be based on taxable income and not gross income.

For computing income tax, all incomes are added up, and then expenses and deductions that are allowed under the income tax rule are subtracted from the total income to arrive at the sum of money to be taxed at the usual rates. In the case of business, all expenses accepted for business are to be deducted to arrive at the adjusted gross income.

In many countries, expenses sustained, or payment of home loan interest and education reimbursement also exempt up to a limit from taxable income. Adjusted gross income is always a larger figure than taxable income. It is the total income of any individual minus certain items. When the computation of income tax is placed, it is not the gross income, but rather the adjusted gross income. Profit acquired from selling any property is added to other sources of income to come to adjusted gross income.