Adjusted Gross Income
Adjusted gross income numbers are becoming even more important. Here’s another tip to help you understand the importance of lowering your adjusted gross income (AGI). In 2011, the Obama administration took away many people’s ability to make a traditional IRA contribution and have it reduce their adjusted gross income, aka, make your contribution tax deductible.
This is the 2013 traditional IRA phase out limit levels:
For single filers: $59,000 to $69,000
For head of household filers: $59,000 to $69,000
For married couples filing jointly: $95,000 to $115,000
For married couples filing separately: $0 to $10,000
So if your adjusted gross income is below the phase out mark, your IRA contribution is fully deductible. If your adjusted gross income is in the phase out range, then your IRA contribution is partially deductible. If your adjusted gross income is above the phase out range, then your deduction for an IRA contribution is gone.
That’s too bad; because a contribution to a traditional IRA was one of the few things you could do as a taxpayer to lower your adjusted gross income. The contribution to a traditional IRA came out “above the line,” which means it would have lowered your AGI by the amount of the contribution.
Today, a person that has a high adjusted gross income has almost no way of lowering their AGI. Yes, your little company or your real estate investments can lower your adjusted gross income, but as an individual, there’s not much you can do.
Things left in the code that let an individual lower their adjusted gross income include stuff like supplies bought by school teachers on the third Sunday of the fourth month, moving expenses if the moving truck drops by the White House for a visit, and other really practical deductions that almost nobody can take advantage of.
There is a little good news, however. If you realize that you made a contribution to a traditional IRA by April 15th last year and you’re not going to get the adjusted gross income benefit you thought you were getting. You have until October 15th to “characterize” your IRA contribution as a Roth IRA contribution. After all, it was effectively an after tax contribution anyway if your deduction phased out because your adjusted gross income was too high.
I go into detail about ways you can lower your adjusted gross income in my Advanced Tax Tactics. Hurry, because you’ve only got a short time to lower your AGI this coming year. Your accountant can’t do anything for you when he does your taxes. YOU have to generate the deductions now that will drop your adjusted gross income.
copyright Lee Phillips