Intuit Academy Tax Practice Exam

When calculating individual federal income tax, what is subtracted from gross income to determine adjusted gross income?

1. Deductions for dependents

2. Above Line Deductions

3. Charitable Contributions

4. Qualified Business Income

The correct answer is: Above Line Deductions

To determine adjusted gross income (AGI) from gross income, it is essential to consider the specific deductions that qualify as "above-the-line" deductions. This category includes various expenses that taxpayers can deduct from their gross income without needing to itemize. These deductions are advantageous because they directly decrease the taxpayer's taxable income and are available to all taxpayers, regardless of whether they take the standard deduction or itemize. Above-the-line deductions consist of specific expenses such as contributions to retirement accounts, student loan interest, tuition and fees, and some health savings account contributions. By subtracting these deductions from gross income, taxpayers arrive at their adjusted gross income, which is a critical figure used in determining eligibility for various tax credits and the overall tax liability. In contrast, options like deductions for dependents, charitable contributions, and qualified business income fall into different categories that might not be subtracted from gross income at this stage. Deductions for dependents can impact the final tax calculation but do not directly affect the AGI. Charitable contributions are generally part of itemizable deductions available after AGI calculation, and qualified business income relates to deductions specific to business owners but is not classified as an above-the-line deduction for all taxpayers. Thus, focusing on above-the