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Chapter 8: Problem 29

What is adjusted gross income?

Short Answer

Expert verified
Adjusted Gross Income (AGI) is the total income you have earned in a year, minus certain tax-deductible expenses. These expenses are specifically outlined by the IRS and include items such as student loan interest, alimony payments, and contributions to retirement accounts.

Step by step solution

01

Definition of Gross Income

Gross Income refers to the total income earned before deductions and taxes. It includes earned income like wages, salaries, bonuses, and unearned income such as dividends, rental income, and profits from asset sales.
02

Definition of Adjusted Gross Income

Adjusted Gross Income (AGI) is your gross income minus adjustments. Adjustments include items like student loan interest, alimony paid, and contributions to a retirement account. Your AGI is the amount of income that is taxable after deductions.
03

Calculation of Adjusted Gross Income

To calculate AGI, start with your gross income. Then, subtract the allowable deductions listed on IRS Schedule 1. The result is your AGI. Remember, the items that can be subtracted are very specific and only those listed by the IRS can be taken into account for the calculation of AGI.

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Most popular questions from this chapter

Suppose that you are thinking about buying a car and have narrowed down your choices to two options: The new-car option: The new car costs \(\$ 28,000\) and can be financed with a four-year loan at \(6.12 \%\). The used-car option: A three-year old model of the same car costs \(\$ 16,000\) and can be financed with a four-year loan at \(6.86 \%\). What is the difference in monthly payments between financing the new car and financing the used car?

The unpaid balance of an installment loan is equal to the present value of the remaining payments. The unpaid balance, \(P\), is given by $$ P=P M T \frac{\left[1-\left(1+\frac{r}{n}\right)^{-n t}\right]}{\left(\frac{r}{n}\right)}, $$

Describe why a buyer would select a 30 -year fixed-rate mortgage instead of a 15 -year fixed-rate mortage if interest rates are \(\frac{1}{4} \%\) to \(\frac{1}{2} \%\) lower on a 15 -year mortgage.

Solve for \(P\) : $$ A=\frac{P\left[(1+r)^{t}-1\right]}{r} . $$ What does the resulting formula describe?

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