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 basically the number you use to calculate your income tax. The bigger your AGI, the more you pay in taxes. Your AGI determines which income tax bracket you are in. There is loud talk about using a specific AGI and if your income is above that number, you will be hit with a big tax. Their thought is the rich can pay more taxes. Especially if you disagree, you ought to watch your AGI, or you will wind up with a big tax bill.
Where the number will be set is tentative, but it will be low enough to hurt a lot of unsuspecting taxpayers. $200,000 or $250,000 have been suggested as the limits. Each year, numerous small business owners make that much. The owner can’t use it, because it is really money the company owns. On the tax form, it just "passes through" to the owner’s bottom line. Imagine the fluster to lower your AGI when the new laws take effect.
Consider ERISA plans as a possible way to start making headway lowering your AGI. Most ordinary retirement and benefit plans are ERISA plans. A standard retirement plan contribution lowers 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 a number of safe investments you can make that not only offer respectable returns, but also lower your AGI by your investment amount. You can also reduce your AGI by $100,000 or more using credits in investments or depreciation in investments.
Call me for information. 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. I have a 90 minute CD that explains 1031 in detail.
Shifting money to family members, which would otherwise be your income, is another way to cut 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. 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". You can shift income by using legal tools, such as LLCs and Family Limited Partnerships. My Accumulation and Preservation of Wealth Course goes into those details.
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