Adjusted gross income
Adjusted Gross Income is a big, fancy term that refers to how much money you make, but also takes into account some special things to make sure you only pay tax on the income that you really get to keep.
Think of it like a big piggy bank. You put money into the bank, but some of that money doesn't really belong to you anymore. Maybe you owe some to your friends or you promised to use some of it to buy your sister a birthday present. So, your adjusted piggy bank balance is the amount of money that you actually get to keep after you pay back your friends and buy your sister’s present.
The same goes for your money earned from your job or any other source of income you might have. You may have certain expenses that you can take away from your total income before paying taxes. Things like rent or mortgage payments, medical expenses, and charity donations can be taken away from your total income, to calculate your Adjusted Gross Income. So, just like the piggy bank, you take away the money you spent on these things to figure out how much you really get to keep after all the bills are paid.
This is important because your taxes are calculated based on your Adjusted Gross Income, which is the amount of money you really have left over after you’ve paid for all of your expenses. So, it’s important to consider all possible deductions to make sure you are not paying extra taxes on money you spent on things that you really needed.
Think of it like a big piggy bank. You put money into the bank, but some of that money doesn't really belong to you anymore. Maybe you owe some to your friends or you promised to use some of it to buy your sister a birthday present. So, your adjusted piggy bank balance is the amount of money that you actually get to keep after you pay back your friends and buy your sister’s present.
The same goes for your money earned from your job or any other source of income you might have. You may have certain expenses that you can take away from your total income before paying taxes. Things like rent or mortgage payments, medical expenses, and charity donations can be taken away from your total income, to calculate your Adjusted Gross Income. So, just like the piggy bank, you take away the money you spent on these things to figure out how much you really get to keep after all the bills are paid.
This is important because your taxes are calculated based on your Adjusted Gross Income, which is the amount of money you really have left over after you’ve paid for all of your expenses. So, it’s important to consider all possible deductions to make sure you are not paying extra taxes on money you spent on things that you really needed.