How to Calculate Adjusted Income

1). Determine any income you have generated during the year. This includes income from wages, interest, dividends, taxable refunds, alimony, business income, capital gains, IRA distributions, pensions, real estate, farms, unemployment compensation and social security benefits. Information related to income will be normally sent to the taxpayer. For example, an employer will send an employee a W2 form to show his income from wages. If the taxpayer has taxable interest, the institution paying the interest will send the taxpayer Form 1099-INT.
2). Determine your above-the-line deductions. This includes educator expenses, health savings deduction, moving expenses, half of any self-employment tax, penalty on savings withdrawals, alimony paid, student interest and other miscellaneous deductions. Some of these deductions are limited, so it's best to check the instructions for filing Form 1040 to see if any deduction is limited.
3). Subtract the above-the-line deductions from your income to arrive at the adjusted gross income.
4). Place the adjusted gross income on line 37 on tax form 1040, line 4 on tax form 1040EZ and line 21 on tax form 1040A, depending on the tax form you are filling out.