When it comes to your wallet, all dollar bills count the same, regardless of where they came from. But all dollar bills are not the same for the Internal Revenue Service. When it comes to taxes, the IRS distinguishes between your adjusted gross income and your taxable income. Your AGI is your gross income after you have taken out allowable deductions, while taxable income is the amount used to determine how much you owe in income taxes. You start with your total income, which is all the money you made that is subject to income taxes. You then subtract your adjustments to income to find your AGI. Finally, you subtract your personal exemptions and either the standard deduction or your itemized deductions to find your taxable income.
Adjustments to Income
Adjustments to income include deductions for contributing to traditional IRAs, alimony you pay, moving expenses, student loan interest and tuition and fees. Say your total income for the year is $51,000. If you contributed $2,000 to a traditional IRA and paid $500 in student loan interest, your adjusted gross income is $48,500.
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Deductions and Exemptions
When you file your taxes, you can either claim the standard deduction, which is a fixed amount based on your filing status, or the sum of your itemized deductions, which include charitable contributions, state and local taxes and mortgage interest. You claim a personal exemption for yourself and your spouse -- if no one else claims either of you as a dependent -- and each person you claim as a dependent. As of the 2014 tax year, the standard deduction is $6,200 for singles and $12,400 for couples filing jointly. Each personal exemption reduces your taxable income by $3,950.