J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

12.1 Figuring Adjusted Gross Income (AGI)

Adjusted gross income is the difference between gross income in Step 1 and the deductions listed in Step 2. Most of the Step 2 deductions can be claimed only on Form 1040 (12.2).

Step 1.

Figure gross income. This is all income received by you from any source, such as wages, salary, tips, gross business income, income from sales and exchanges of property, interest and dividends, rents, royalties, annuities, pensions, etc. But because of exclusions allowed by the tax law, gross income does not include such items as tax-free interest from state or local bonds (4.24), tax-free parsonage allowance (3.13), tax-free insurance proceeds (11.8–11.20), gifts and inheritances (11.4), certain home sale gains (29.1), Social Security benefits that are not subject to tax (34.3), tax-free scholarship grants (33.1), tax-free board and lodging (3.12), and other tax-free fringe benefits (Chapter 3).

Step 2.

Deduct from your 2012 gross income only the following items:

Repayment of supplemental unemployment benefits required because of receipt of trade readjustment allowances (2.9)

Forfeiture-of-interest penalties because of premature withdrawals (4.16)

Capital loss deduction up to $3,000 (5.4)

IRA contributions (8.4)

Rent and royalty expenses (9.2)

Educator expenses- if Congress provides extension (12.2).

Tuition and fees-if Congress provides an extension (12.2).

Deductible part of self-employment tax liability (12.2)

Health savings account (HSA) contributions ...