What must you subtract from AGI to compute taxable income?

To compute taxable income, you start with your Adjusted Gross Income (AGI) and then subtract specific deductions allowed by the IRS. The standard deduction is a fixed dollar amount that reduces the income on which you are taxed and is available to most taxpayers. Additionally, exemptions were historically another deduction that taxpayers could claim, although they are currently suspended until the 2025 tax year due to tax reform legislation.

This answer is correct because subtracting the standard deduction directly reduces AGI to arrive at taxable income. The standard deduction is essentially a benefit provided by the tax code to decrease the taxable income for individuals or married couples filing jointly, helping to simplify the tax process for many taxpayers.

Other options do not serve the purpose of adjusting AGI to reach taxable income. For example, HIRE exempt wages are specific types of earnings that are not subject to income tax but do not directly affect the calculation of taxable income from AGI. Employer-sponsored health coverage costs may be excluded from income but they are not directly subtracted from AGI when calculating taxable income, and Roth contributions are made with after-tax dollars and do not have a deductible component affecting the AGI calculation. Thus, the standard deduction is the correct and necessary subtraction from AGI to accurately compute