How your AGI can Lower Taxes
Your AGI may be one of the most important numbers you keep track of this year and for years to come. Adjusted Gross Income (AGI) is fundamentally the figure you use to determine the amount of taxes you pay. You owe a lot of tax if you have a large AGI. The tax bracket you are in is a result of your AGI. 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. A lot of little business people make that much each year.
It is actually the company’s money, so the owner can’t really use it. For tax purposes, it just "passes through" to the owner’s bottom line. There is going to be a new urgency to reduce your AGI, once these new laws come about.
You can lower your AGI by making less money, that is guaranteed. That’s not acceptable to many people. Let’s face it, people don’t want to change diapers so they can save a couple of hundred thousand dollars and lower their AGI. Lowering your AGI isn’t as simple as just adding more deductions. It would require quite a number of deductions if you are making $400,000 per year and you want to get your AGI down to $250,000. Purchasing additional office supplies for your little business won’t get you enough deductions.
Consider ERISA plans as a possible way to start making headway lowering your AGI. Your regular retirement and benefit plans are ERISA plans. Your AGI is reduced by any contribution to a standard retirement plan. 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. Less money "passes through" to you when the company takes a deduction.
There are several sound investments that provide excellent returns, but also cut your AGI by the amount that you spend. By using credits or depreciation in investments, you can lessen your AGI $100,000 or more.
For further information contact me. Selling a property? You can use IRS Code Section 1031 to reduce or eliminate the income that you would normally have to recognize for such a sale. You can get my 90 minute CD which explains the details of a 1031.
Moving money, which would otherwise be your income, to family members is another way to lower your AGI. If you are just getting a W2 income, then you can’t "move money" to your family members, but if you have a little business, then you can shift income. The easiest way is to simply pay your kids to do work in your business. If you don’t want to "hire your kids", there are a number of things you can do to shift income (thousands of dollars). You can shift income by using legal tools, such as LLCs and Family Limited Partnerships. I deal with all of these concepts in my Accumulation and Preservation of Wealth course.
