When you’re doing your taxes, you probably focus on your taxable income and income tax due. But there’s another really important number to look at, and it determines a lot about your tax bill. That number is called adjusted gross income, or AGI.

AGI can have a big impact on which tax deductions and credits you can take, and how much of a break you’ll get. When people talk about deductions or credits getting “phased out,” that phase out is based on AGI. For example, AGI determines if you’re allowed to take the Child Tax Credit or the Saver’s Credit, as well as how big that credit will be.

And, for another example, only medical expenses that exceed 7.5% of your AGI are deductible. So you can see how much this number could affect your tax bill – and why you’d want it to be as low as possible.

Here’s how to calculate your AGI. You start with all of your earnings that are subject to income tax, which include:

  • The amount reported on your W-2 from work
  • Any self-employment income
  • Alimony you’ve received (if it’s taxable)
  • Interest and dividends
  • Capital gains on investments
  • Retirement account withdrawals

Then you subtract adjustments to your income, which could include things like:

  • Contributions to certain retirement accounts, like IRAs
  • Half of any self-employment taxes you paid
  • Alimony that you’ve paid (if it’s tax-deductible)
  • Student loan interest
  • Educator expenses

The result of subtracting those adjustments from your earnings gives you the AGI.