The Lower Your AGI-The Lower your Taxes

By: Berber Click author's name for more of his/her articles

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 tax bracket is determined by your AGI. Congress is considering setting an AGI limit and if you make above that amount, you will be hit with a large tax. The concept is tax the rich. 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. $200,000 or $250,000 have been suggested as the limits. A lot of little business people make that much each year. It really isn't all theirs to spend, because it is actually the company's money. For tax purposes, it just "passes through" to the owner's bottom line. Once these laws come about, there is going to be a new urgency to reduce your AGI.
You can make less money and for certain it will reduce your AGI. That's not acceptable to many people. Most folks want make more money and lower their AGI by thousands of dollars without changing diapers. Lowering your AGI isn't as simple as just adding more 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.
You may be able to make good progress lowering your AGI, if you consider an ERISA plan. They are your typical retirement and benefit plans. Your AGI is reduced by any contribution to a standard retirement plan. 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. When your company gets a deduction, less money "passes through" to your bottom line.
You can make a number of solid investments that not only offer great returns, but also decrease your AGI by the amount that you put in. You can use credits in investments or depreciation in investments and also decrease your AGI by $100,000 or more.
Contact me for some suggestions. 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.
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. Simply pay your kids a wage to do work in your company. It's the easiest way. You can do a number of different things to shift income (thousands of dollars), even if you don't "hire your kids." Legal tools, such as LLCs and Family Limited Partnerships can be used to shift income. I deal with all of these concepts in my Accumulation and Preservation of Wealth course.

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