Question

Gretchen made $56,750 last year. She paid $1,200 in student loan interest

and made a $3,000 contribution to her IRA. On her federal tax return, she will
claim $52,550 to be her:
A. standard deduction
B. AGI
C. gross income
D. taxable income

Answer 1

B) AGI

Explanation:

Definitions

• IRA (Individual Retirement Account)
• Standard Deduction: the portion of income not subject to tax that can be used to reduce your tax bill
• AGI (Adjusted Gross Income): gross income minus certain adjustments, such as business expenses, student loan interest payments, IRA and other expenses.
• Gross income: total income from all sources, including returns, discounts, and allowances, before deducting any expenses or taxes
• Taxable income: money earned which is subject to taxation by federal or state authorities.

So as Gretchen has subtracted adjustments of student loan interest and IRA contributions from her gross income, the remaining amount is the AGI.