Learning the math behind your tax return may seem overwhelming. However, understanding the three different levels of income can make things a little easier. The three amounts are: total income, adjusted gross income (AGI), and taxable income.
One important term to familiarize yourself with at tax time is adjusted gross income. This includes your total income, less any above-line-deductions, such as;
deductible contributions to traditional IRA
job-related moving expenses
50% of self-employment tax paid by self-employed taxpayers
student loan interest
After subtractions of itemized or standard deductions and dependency and personal exemptions from the adjusted gross income, the remaining amount is your taxable income on which your tax liability is set.