Author Topic: Reducing AGI  (Read 7804 times)

Rebecca Stapler

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Reducing AGI
« on: August 13, 2013, 08:16:28 AM »
My spouse is contemplating a job change and I'm trying to assess the financial impact of the decision.

If we don't own a home and earn $220k gross annually, what can we do to reduce our AGI? My spouse would be working for himself and we don't have retirement benefits at work.

Here are the possibilities:
  • $17,500 into a SIMPLE 401(k) for my spouse
  • I do not have a 401(k) at work, but maybe I could convince them to start one?
  • $11,000 into traditional IRAs, for both of us -- as far as I can tell, we would make too much for this option
  • HSA account -- I'm not sure of the details of how to start this and what the limits are, but I am about to look into it, because our insurance is high deductible
  • $3000 deduction for daycare expenses (we are enrolled in a Dependent Care Expenses Program, but it's at his work, so this would end)
  • $2000 student loan interest

Any other ideas?

unpolloloco

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Re: Reducing AGI
« Reply #1 on: August 13, 2013, 08:30:05 AM »
7. Writing off business expenses - but I assume that's a given!
8. Charitable giving

randymarsh

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Re: Reducing AGI
« Reply #2 on: August 13, 2013, 08:45:46 AM »
I think a Solo 401k or SEP IRA would make more sense than a SIMPLE. With the Solo, your husband can put in $17,500 for his contribution plus a certain amount (it's a complicated calculation) as the employer contribution. I believe it'll end up being more than what the SIMPLE allows. The SEP allows for 25% of pay to be contributed, up to a max of $51,000.

aj_yooper

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Re: Reducing AGI
« Reply #3 on: August 13, 2013, 08:52:36 AM »
I agree with thefinancialstudent re a SEP IRA or Solo 401k.  Check it out at:  https://investor.vanguard.com/what-we-offer/small-business/overview?Link=facet  It could be very helpful to you.  The HSA is also a good idea.

I would also talk with your employer re the 401k/403b options.  You should have plenty of tax advantaged space then.


SunshineGirl

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Re: Reducing AGI
« Reply #4 on: August 13, 2013, 09:10:51 AM »
Ditto on the Solo 401K.


Rebecca Stapler

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Re: Reducing AGI
« Reply #5 on: August 13, 2013, 10:08:12 AM »
Thank you. I'm so glad I posted! I will definitely look into the Solo / SEP IRA.

7. Writing off business expenses - but I assume that's a given!

Yes, thanks for the reminder. Although, other than the home office and server costs of $25/mo, there isn't much overhead to write off.

clutchy

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Re: Reducing AGI
« Reply #6 on: August 13, 2013, 10:16:52 AM »
you make too much for student loan interest deductions.

every last bit of that is phased out.

Rebecca Stapler

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Re: Reducing AGI
« Reply #7 on: August 13, 2013, 10:18:22 AM »
you make too much for student loan interest deductions.

every last bit of that is phased out.

Ah frick, you're right. Being over income for anything is a golden problem we have yet to experience. I will take it off the spreadsheet. Thanks!

aj_yooper

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Re: Reducing AGI
« Reply #8 on: August 13, 2013, 10:30:16 AM »
Home office expenses-% of rent, utilities, apartment insurance, 100% internet, server expenses, advertising, cell phone, association fees, conferences, mileage or % of car costs, office equipment, office supplies, errors and omissions insurance, business meals,etc.  I wouldn't underestimate the expenses. 

clutchy

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Re: Reducing AGI
« Reply #9 on: August 13, 2013, 10:36:59 AM »
you make too much for student loan interest deductions.

every last bit of that is phased out.

Ah frick, you're right. Being over income for anything is a golden problem we have yet to experience. I will take it off the spreadsheet. Thanks!

the big ones for most people are;

401k
Trad IRA(you're phased out)
pre-tax medical
dependent care

other than that there is really not that much you can do to reduce your AGI.  Most people tend to do what they can "above the line" and then work on deductions "below the line".

Rebecca Stapler

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Re: Reducing AGI
« Reply #10 on: August 13, 2013, 10:52:52 AM »
Home office expenses-% of rent, utilities, apartment insurance, 100% internet, server expenses, advertising, cell phone, association fees, conferences, mileage or % of car costs, office equipment, office supplies, errors and omissions insurance, business meals,etc.  I wouldn't underestimate the expenses.

Ah yes! Thank you. That just saved us some money whether my spouse takes the job or not. We have to pay for an upcoming conference. IDK how I forgot that.

mlipps

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Re: Reducing AGI
« Reply #11 on: August 13, 2013, 10:53:49 AM »
If you don't have a 401k at work and your spouse can max out the SIMPLE IRA to get your AGI down to $173k or less, you could have a deductible IRA.

http://www.irs.gov/publications/p590/ch01.html#en_US_2012_publink1000230467

Rebecca Stapler

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Re: Reducing AGI
« Reply #12 on: August 13, 2013, 11:14:42 AM »
If you don't have a 401k at work and your spouse can max out the SIMPLE IRA to get your AGI down to $173k or less, you could have a deductible IRA.

http://www.irs.gov/publications/p590/ch01.html#en_US_2012_publink1000230467

Thanks. We might be able to do this if I work for him, and he makes an employer contribution to an individual 401(k) for me. The spousal benefit of the solo 401(k) is really awesome. I planned on helping him out on this project, but wasn't divvying up the income between us. Now I think we should.

seattlecyclone

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Re: Reducing AGI
« Reply #13 on: August 13, 2013, 03:03:14 PM »
You can only do the traditional IRA deduction if your AGI is less than $173k or less and you aren't eligible to participate in a retirement plan through your work (either through your main employer or your husband's business). You will probably find that the solo 401(k) contributions for your part-time work in his business are a better deal than an IRA deduction would be, but just be aware that you can't do both.

seattlecyclone

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Re: Reducing AGI
« Reply #14 on: August 13, 2013, 03:07:18 PM »
Sorry for the double post, but I wanted to offer another AGI-decreasing suggestion: capital losses.

If you have a net capital loss for the year, the first $3,000 of that loss brings down your AGI. To pursue this strategy, invest a diverse set of individual stocks rather than shares in a diversified mutual fund or ETF. Near the end of the year, figure out which shares have gone down since you purchased them (odds are there will be a few), and sell them. Keep the winners for a time when you're in a lower tax bracket and capital gains are taxed at 0%.

ghaynes

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Re: Reducing AGI
« Reply #15 on: August 13, 2013, 03:34:28 PM »
Hi Stan,

I've been following your journal and I saw that posted 3 months ago that your household income was $130k and now its $220k. That's one helluva of raise in 3 months. Is it all the side jobs that increased your income since then. Was just curious since you never mentioned the increase in your journal.

tomsang

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Re: Reducing AGI
« Reply #16 on: August 13, 2013, 03:46:15 PM »
My spouse is contemplating a job change and I'm trying to assess the financial impact of the decision.

If we don't own a home and earn $220k gross annually, what can we do to reduce our AGI? My spouse would be working for himself and we don't have retirement benefits at work.

Here are the possibilities:
  • $17,500 into a SIMPLE 401(k) for my spouse
  • I do not have a 401(k) at work, but maybe I could convince them to start one?
  • $11,000 into traditional IRAs, for both of us -- as far as I can tell, we would make too much for this option
  • HSA account -- I'm not sure of the details of how to start this and what the limits are, but I am about to look into it, because our insurance is high deductible
  • $3000 deduction for daycare expenses (we are enrolled in a Dependent Care Expenses Program, but it's at his work, so this would end)
  • $2000 student loan interest

Any other ideas?

Can you elaborate on why it is important to reduce your AGI?  Financial aid or something based on AGI vs. Taxable income.  That may help.

Otherwise, it is time for you to start a side gig that kicks off taxable losses. So something that has depreciation or expensing potential.  Watch out for AMT and other issues.   

Undecided

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Re: Reducing AGI
« Reply #17 on: August 13, 2013, 04:53:50 PM »
you make too much for student loan interest deductions.

every last bit of that is phased out.

Ah frick, you're right. Being over income for anything is a golden problem we have yet to experience. I will take it off the spreadsheet. Thanks!

Similarly, I think that the benefit of taking the child and dependent care credit decreases, to a point, as income increases, and at your income it may be significantly less beneficial than an employer-offered pre-tax dependent care flexible saving account. Also, the "credit" is a credit, not a deduction in AGI (so it's not like the employer-offered plan).

sol

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Re: Reducing AGI
« Reply #18 on: August 13, 2013, 06:05:26 PM »
If you're unsure about what deductions you qualify for, I'd consider hiring an accountant.  Chances are good you'll miss more deductions than you'll spend on a professional.

Rebecca Stapler

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Re: Reducing AGI
« Reply #19 on: August 14, 2013, 07:51:50 AM »
Hi Stan,

I've been following your journal and I saw that posted 3 months ago that your household income was $130k and now its $220k. That's one helluva of raise in 3 months. Is it all the side jobs that increased your income since then. Was just curious since you never mentioned the increase in your journal.

My spouse has a freelancing opportunity and we want to analyze the actual benefits. It's likely he would have to quit his full time job in order to do this, so we want to make sure we understand the true financial impact this would have on all the moving parts in our life -- including that his loan payments are based off of his AGI, our loan repayment assistance would stop (which is perfectly fine and understandable, but we want to be able to re-enter the program in the future if he goes back to non-profit work), and most importantly, we need to estimate our tax liability so we can divert the right amount of money to a savings account.


Otherwise, it is time for you to start a side gig that kicks off taxable losses. So something that has depreciation or expensing potential.  Watch out for AMT and other issues.   

Crap. I have no idea what kind of side gig kicks off taxable losses, and whether that would be a good thing? (Losing $100 for the sake of saving $25 in taxes?) And I know little about the AMT except that it tends to sneak up on people who earn a lot of money -- yet another golden problem we've never had! Thank you for the heads-up.

If you're unsure about what deductions you qualify for, I'd consider hiring an accountant.  Chances are good you'll miss more deductions than you'll spend on a professional.


Our taxes are complicated this year, so I've been considering this for our taxes. If he takes this gig, we will for sure be hiring someone knowledgeable to steer us in the right direction.