What often must be deducted from adjusted gross income to compute taxable income?

To compute taxable income, you must deduct standard or itemized deductions from your adjusted gross income (AGI). The process begins with your total income, which is then adjusted to arrive at the AGI. Deductions are subtracted from the AGI to determine the taxable income, which is the income subject to federal income tax.

Standard deductions provide a fixed amount that taxpayers can deduct based on their filing status, while itemized deductions involve listing eligible expenses such as mortgage interest, medical expenses, and charitable contributions. Taxpayers can choose the method that gives them the greater deduction, which ultimately reduces their taxable income.

Other options do not fit the context as precisely. Business expenses, for instance, would typically be deducted in calculating AGI rather than taxable income, while gross income is a starting figure, not something that is deducted. Capital gains, while they may affect taxable income, are accounted for in the income calculations rather than being a standard or itemized deduction. Thus, standard or itemized deductions are essential in moving from AGI to taxable income.