How your AGI can Lower Taxes
Starting today and for the future, it will be essential for you to keep track of your AGI. Adjusted Gross Income (AGI) is basically the number you use to calculate your income tax. The bigger your AGI, the more you pay in taxes. Your AGI determines your tax bracket. Washington is threatening that if your income is above that certain number AGI, you will be hit with a big tax. The concept is tax the rich. You might not concur with this idea, but you will end up paying a lot of income taxes, if you don’t watch your AGI.
Where Washington sets the number is undecided, but it is certain a lot of unsuspecting families will be hurt on their taxes. $200,000 or $250,000 have been suggested as the limits. Many small businessmen make that amount yearly. It is actually the company’s money, so the owner can’t really use it. It just "passes through" to their bottom line for tax purposes. When the new laws come down, there is going to be a panic to lower your AGI.
There is one sure fire way to lower you AGI, that is to make less money. I have also seen suggestions to adopt, or go back to school or have your spouse quit their job as a way to lower your AGI. I want to make my money and lower my AGI by a couple of hundred thousand dollars without changing diapers.
To reduce your AGI is harder that just accumulating a series of deductions. If you are making $400,000 per year and getting your AGI down to $250,000, you’d have to take a lot of deductions to get there. You won’t get where you want to be by procuring extra office supplies for your little business.In order to start making serious headway lowering your AGI, look at the ERISA plans. Your regular retirement and benefit plans are ERISA plans. Contribution to any standard retirement plan decreases your AGI. Benefit plans, such as a Health Reimbursement Agreement (HRA) will let your little company put a lot of money basically tax free into the plan indirectly lowering your AGI, because the company gets a tax deduction for contributions made to the plan. If the company gets a deduction, that means there will be less money to "pass through" to you.
There are a number of solid investments you can make that not only give good returns, but also reduce your AGI by the amount that you invest. 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. You can get my 90 minute CD which explains the details of a 1031.
Money, which would otherwise be your income, can be shifted to family members thereby decreasing your AGI. "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. The easiest way is to simply pay your kids to do work in your business. There are a number of things you can do to shift income (thousands of dollars) if you don’t want to "hire your kids". You can use legal tools, such as LLCs and Family Limited Partnerships to shift income. I deal with all of these concepts in my Accumulation and Preservation of Wealth course.