A taxpayer’s AGI is calculated by combining “all qualified income and subtracting all qualified adjustments”. Usually it is in the taxpayer's best interest to lower his or her adjusted gross income so that the taxpayer may qualify for more tax benefits or could potentially result in a lower bill. The following 2 steps will enable a taxpayer to calculate his or her Adjusted Gross Income.

Step 1: You must first calculate your gross income.
The following represent all the available items that are considered as qualified income that are used to calculated gross income as shown below,

1. tips,
2. business income,
3. alimony you receive,
4. unemployment benefits,
5. taxable Social Security benefits,
6. income on rental property, royalties,
7. money distributed from retirement accounts,
8. taxable refunds,
9. taxable interest,
10. dividends
11. capital gains from securities you sold at a profit.

Step 2: Next subtract qualified adjustments from your gross income.
The following represent all the available qualified adjustments as shown below,

1. moving expenses,
2. alimony you pay to others,
3. early withdraw penalties on savings accounts,
4. educator expenses,
5. 50 percent of self-employment tax,
6. health insurance premiums for the self employed,
7. all the interest on student loans, qualified tuition and fees paid by students,
8. any qualified Individual Retirement Accounts contributions.

Step 3: Subtract the all qualified Income by all qualified adjustments.
The total of all items of qualified income that were calculated from Step 1, are reported on Line 22 of the Form 1040. This amount is subtracted by all qualified adjustments that are calculated from Step 2, and reported on Line 36 of the Form 1040. This results in the taxpayers Adjusted Gross Income, which is reported on Line 37 of the Individual Form 1040.

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