What does adjusted gross income (AGI) represent?

Adjusted Gross Income (AGI) is defined as total gross income minus certain adjustments. AGI is a crucial figure on an individual's tax return as it serves as the starting point for calculating taxable income. Adjustments can include deductions like contributions to retirement accounts, student loan interest, tuition fees, and certain business expenses, among others.

This calculation is significant because it influences eligibility for various tax credits and deductions. By subtracting those adjustments from gross income, a taxpayer is able to arrive at a more accurate reflection of their income for tax purposes, which can lead to potential tax savings. Thus, the correct representation of AGI is that it derives from total gross income after accounting for allowable adjustments.