Author Topic: Best ways to Lower Adjusted Gross Income?  (Read 12011 times)

Ganon91

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Best ways to Lower Adjusted Gross Income?
« on: January 13, 2015, 07:26:52 PM »
I have just discovered, much to my delight, that increasing my TSP contributions will save me thousands of dollars this year by lowering me to the 15% tax bracket.

In one short year, I expect to be back in the 25% tax bracket.  I would very much like to remain in the 15%, but even after max contributions I expect my taxable income to be roughly 50,200 next year.

What are your methods of lowering Adjusted Gross Income? Can I get back down to 15% or is it impossible?

Thanks for all the helps guys!

sol

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #1 on: January 13, 2015, 07:41:40 PM »
Just to clarify, when you're "in the 25% tax bracket" you only pay 25% on the income you show over and above the top of the 15% bracket.  So lowering your income from $1 above the cutoff to $1 below the cutoff only saves you 40 cents (25 on the first dollar and 15 on the second), not 10% of your income.  It's a common mistake.

As for lowering your AGI, the easy ways are to max your 401k or TSP, and set up an HSA if you have a high deductible health plan for your health insurance.  You can also set up a child care FSA with pre-tax money, but that balance is use-or-lose each year.

Ganon91

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #2 on: January 13, 2015, 07:46:49 PM »
Clarification appreciated, Spreadsheet update in progress.

So If I've already maxed the TSP and IRA, there really isn't much I can do?

I don't think the HSA would be economical for me and I have no children.

sol

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #3 on: January 13, 2015, 08:32:23 PM »
So If I've already maxed the TSP and IRA, there really isn't much I can do?

TSP and a deductible IRA if you're eligible and an HSA are the three easy ones.  Beyond that you have to resort to itemizing, which can save you a ton under the right circumstances.  Those circumstances usually involve charitable donations, your mortgage interest and property taxes, state tax or a sales tax deduction if you live in a state with no income tax, and all of the tax breaks related to children.

I think student loan interest is deductible too?  I've never dealt with that so not sure.

Here, google is full of ideas:  http://taxes.about.com/od/deductionscredits/a/adjustments-to-income.htm


Runge

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #4 on: January 13, 2015, 08:34:24 PM »
I suggest reading through this if you haven't already. http://www.madfientist.com/hsa/

MrMoogle

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #5 on: January 13, 2015, 08:36:05 PM »
401k, IRA (if your income is low enough, yours is), and HSA are the common ones.  Other plans if your company offers them.

Worst case an HSA is the same as a tIRA (pay taxes when you take out money).  But of course you have to have a high deductible plan.  Best case it's no tax in and no tax out.  Do some research on HSA if you have a high deductible plan.

As Runge said:
I suggest reading through this if you haven't already. http://www.madfientist.com/hsa/

sol

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #6 on: January 13, 2015, 08:42:32 PM »
I've been thinking about AGI tuning quite a bit recently in preparation for my retirement.  If you're living off of your investments, you kind of get to set your own AGI to whatever level is most advantageous to you, and generally lower is better.

But if your concern is just paying less in taxes, then there's low hanging fruit outside of just lowering your AGI.  This year we're getting a $9k tax credit for installing solar panels.  Kids are worth a small fortune.  Tax loss harvesting will cut $3k/year without trying too hard, assuming your portfolio is large enough for you to incur losses somewhere.  There are a bunch of little credits for moving expenses, classroom expenses, and tuition.  There's the $2k Saver's Credit if you put $4k into an IRA.  You can bunch your property tax payments into one year when you itemize, and then take the standard deduction the next year.  There are all kinds of tricks related to running your own business, even if that business is just getting paid $20 to watch your neighbor's cat while he's away. 

Tax planning is a vast and intricate subject, but it pays you very real dollars to learn and understand it. 

dividendman

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #7 on: January 13, 2015, 08:59:34 PM »
You can also use capital losses to offset ordinary income: http://www.irs.gov/uac/IRS-Reminds-Taxpayers-They-Can-Use-Stock-Losses-to-Reduce-Taxes

If you don't have realized losses you can try tax loss harvesting.

MDM

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #8 on: January 13, 2015, 09:43:00 PM »
Primarily see lines 12-14, 17-18, and 23-35.  Also check with your employer for pre-tax deductions (401k/403b/457, insurance, FSA/HSA, commuter, etc.) that don't even make it to form 1040 but are withheld from your wages so your W-2 number is less than your gross pay.



dodojojo

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #9 on: January 14, 2015, 09:59:18 AM »

I think student loan interest is deductible too?  I've never dealt with that so not sure.


Yep, one saving grace about enormous student loans...

GGNoob

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #10 on: January 14, 2015, 10:20:02 AM »
I don't think the HSA would be economical for me and I have no children.

If eligible, an HSA is a great investment product. It will allow you to pay for medical expenses tax free (income tax deduction on contributions, tax free growth of the money, and tax free withdrawal for medical expenses). Here's a whole list of eligible expenses: http://healthsavings.com/hsa/what-is-covered-by-an-hsa/

You do not need to reimburse yourself for expenses in the same year that you made them. So for example, you could technically save all of your receipts for eligible expenses until early retirement, and then withdraw that money tax free.

If you don't end up having enough medical expenses, you can withdraw penalty free at age 65 and the withdrawals are taxed as ordinary income (like a tIRA).

But with an HSA, you must have a qualified high deductible health plan: http://healthsavings.com/who-is-eligible-for-an-hsa/

Guizmo

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #11 on: January 14, 2015, 10:56:18 AM »
If you max out the TSP and the tIRA you should be in the 15% tax bracket.

50,200
(18,000) - TSP
(5,500) - tIRA
_______
26,700 in AGI

FrugalSpendthrift

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #12 on: January 14, 2015, 01:32:55 PM »
So If I've already maxed the TSP and IRA, there really isn't much I can do?
If you marry someone that earns less than you and then file jointly, then you could get back into the 15% bracket.

Ganon91

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Re: Best ways to Lower Adjusted Gross Income?
« Reply #13 on: January 14, 2015, 02:23:50 PM »
Lots for me to digest and work on.

Thank you all for the assistance!