Lower Taxes - Check Your AGI
This year and in the future, your AGI may be one of the most significant numbers you keep track of. Adjusted Gross Income (AGI) is basically the number you use to calculate your income tax. You owe a lot of tax if you have a large AGI. Your AGI determines your tax bracket. There is loud talk about using a specific AGI and if your income is above that number, you will be hit with a big tax. Their thought is the rich can pay more taxes. You may or may not agree with the concept, but you had better watch your AGI, or you will end up paying a lot of income taxes.
Where Congress sets the number is unsure, but a lot of unsuspecting families, will be hurt. Rumor has it that $200,000 or $250,000 will be the limit. It is not uncommon for small business owners to bring that much home each year.
It is actually the company’s money, so the owner can’t really use it. On the tax form, it just "passes through" to the owner’s bottom line. Imagine the fluster to lower your AGI when the new laws take effect.
You can lower your AGI by making less money, that is guaranteed. Some suggestions I saw to lower your AGI included adoption, or going back to college or having your spouse quit their job. Most folks want make more money and lower their AGI by thousands of dollars without changing diapers. The fact is lowering your AGI isn’t as easy as accruing a few deductions. Reducing your AGI to $250,000 when you are making $400,000 per year would require a lot of deductions. Buying more office supplies for your little business isn’t going to get you where you want to be.
In order to start making serious headway lowering your AGI, look at the ERISA plans. Your regular retirement and benefit plans are ERISA plans. A standard retirement plan contribution lowers your AGI. Your little company can put a lot of money basically tax free into Health Reimbursement Agreement (HRA) and other such benefit plans, thereby indirectly lowering your AGI, because the company gets a tax deduction for contributions made to the plan. Less money "passes through" to you when the company takes a deduction.
There are a number of safe investments you can make that not only offer respectable returns, but also lower your AGI by your investment amount. By using credits or depreciation in investments, you can lessen your AGI $100,000 or more.
Contact me for some suggestions. If you are selling a property use IRS Code Section 1031 to eliminate the income that you would otherwise have to recognize if you did the sale under normal circumstances. For a detailed explanation of a 1031 exchange, I have a 90 minute CD.
Another way to decrease your AGI is to move money, which would otherwise be your income, to family members. "Moving money" to your family members is not possible if you are just getting a W2 income, but if you have a little business, then you can. You can pay your kids to do work in your business; that’s the most uncomplicated way. There are a number of things you can do to shift income (thousands of dollars) if you don’t want to "hire your kids". Legal tools, such as LLCs and Family Limited Partnerships can be used to shift income. Accumulation and Preservation of Wealth goes into these concepts in detail.