Adjusted gross income (AGI) is gross income from taxable sources minus allowable deductions.
In the equation above, taxable sources can include wages, interest, capital gains, income from retirement accounts, and alimony received. Allowable deductions can include unreimbursed business expenses, some medical expenses, alimony paid, and deductible retirement plan contributions.
The American Jobs Creation Act of 2004 allows a taxpayer to, while computing AGI, to deduct attorney fees and court costs paid by the taxpayer from the taxpayer's gross income.
The deductions for AGI are all "above the line deductions" meaning that they are taken into account before tax exemptions for military service, dependent status, etc.