The Lower Your AGI - The Lower your Taxes
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. The bigger your AGI, the more you pay in taxes. 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 the president sets the number is uncertain, but it will be low enough that it will hurt a lot of unsuspecting families. Rumor has it that $200,000 or $250,000 will be the limit. 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 make less money and for certain it will reduce your AGI. That’s not acceptable to many people. I want to make my money and lower my AGI by a couple of hundred thousand 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.Look at the ERISA plans which are a good way to start making serious headway lowering your AGI. 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. 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. If you are selling a property and you want to eliminate the income that you would otherwise have to recognize under normal circumstances, use 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. 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. Have your kids do work in your business and pay them. It’s the simplest way. If you don’t want to "hire your kids", there are a number of things you can do to shift income (thousands of dollars). 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.