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How your AGI can Lower Taxes
Your AGI may be one of the key numbers you keep track of both this year and in the future. Adjusted Gross Income (AGI) is in essence the sum you use to compute your income tax. If you have a sizable AGI, you pay a significant amount of tax. Your AGI determines which income tax bracket you are in. Right now there is talk about setting a predetermined AGI, and if your income exceeds that amount, your taxes will be increased. Their idea is the rich can afford taxes. You may not have the same opinion, but you should keep an eye on your AGI, or your income taxes will eat you alive.
Where Washington sets the number is undecided, but it is certain a lot of unsuspecting families will be hurt on their taxes. Talk is to set it around $200,000 or $250,000. Each year, numerous small business owners make that much. The money is needed to keep the company running, so the owner can’t spend it. It just "passes through" to their bottom line for tax purposes. Imagine the fluster to lower your AGI when the new laws take effect.
One dependable way to lower you AGI is to make a smaller amount of money. One website I saw suggested your spouse quit their job, or you adopt a kid, or go back to college as a way to lower your AGI. 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. Dropping your AGI down to $250,000 would require a lot of deductions when you are making $400,000. Acquiring more supplies for your little business isn’t going to get you where you want.
You may be able to make good progress lowering your AGI, if you consider an ERISA plan. Your regular retirement and benefit plans are ERISA plans. Any contribution to a standard retirement plan reduces your AGI. You can indirectly lower your AGI when your little company puts money, basically tax free, into the benefit plans such as a Health Reimbursement Agreement (HRA), because the company gets a tax deduction for contributions they make. If the company gets a deduction, that means there will be less money to "pass through" to you.
There are several sound investments that provide excellent returns, but also cut your AGI by the amount that you spend. You can use credits in investments or depreciation in investments and also decrease your AGI by $100,000 or more.
For suggestions, feel free to call. If you are selling a property, eliminate the income you would normally have to recognize by using IRS Code Section 1031. I have a 90 minute CD that explains 1031 in detail.
Money, which would otherwise be your income, can be shifted to family members thereby decreasing your AGI. You can’t "move money" to your family members if you are just getting a W2 income, but if you have a little business, then you can play the game. You can pay your kids to do work in your business; that’s the most uncomplicated way. You can do a number of different things to shift income (thousands of dollars), even if you don’t "hire your kids". LLCs and Family Limited Partnerships and other such legal tools can be used to shift income. My Accumulation and Preservation of Wealth Course goes into those details.