Adjusted gross income is something you may not understand, and yet it is the number or tax concept that is at the core of how much you pay in taxes each year. Tax tips that will lower your adjusted gross income are a lot more valuable than tax tips that help you with your standard deductions.
Why is your adjusted gross income so important, and why hasn’t your accountant ever talked to you about it?
Your AGI determines:
- Itemized Deduction
- Exemption Phase Out
- Child Care Credits
- Roth IRA
- Alternative Minimum Tax
- And Your Tax Bracket
If you can cut your adjusted gross income, you may end up in a lower tax bracket and pay taxes at a lower rate. So a tax tip that lowers adjusted gross income is in a sense a lot more valuable than tax tips that just give you a “standard deduction.”
Unfortunately, accountants don’t bother to have an adjusted gross income or AGI discussion with their clients. You have probably never had your accountant sit you down and have a heart to heart talk about putting your adjusted gross income on a diet.
Above the Line and Below the Line Accounting and Your Adjusted Gross Income
“The line” is the last line on page one of a 1040 tax form. It is the adjusted gross income line. Anything done above the line will raise or lower your adjusted gross income. Anything done below the line will not affect your adjusted gross income. Therefore, you want to do your tax planning above the line.
Most tax tips are related to standard deductions that are used below the line. For example, a home mortgage deduction is below the line. Charitable contributions, medical expenses, tax preparation fees, and most of the other things you think of as good tax planning tools are all below the line. They don’t affect your adjusted gross income.
About the only thing the average American can do above the line is invest in a standard IRA. That’s an above the line deduction. If you want to affect your AGI, you have to either deal with real estate and file a schedule E or you need to have some sort of a small business.
Above the Line Tax Tips
There are lots of thing you can do with a business or real estate above the line. Your business can pay the cell phone bill. Of course, you need to use the cell phone for the business, but if you slide in a personal call or two – well it happens. Computer, mileage, health care costs, retirement contributions, and lots of other great tax tips can be used by a company and ultimately end up lowering your adjusted gross income.
The Advanced Tax Tactics prepared by LegaLees LLC will give you some great tax tips that can be used above the line. These are tax tips anyone can use. Yes, you may have to start a business. Did you know that you can set up an LLC to do family parties and call that a business. Anyone can have a small business.
Depending upon how your income is derived (passive or earned), you may want your LLC taxed as a sole proprietorship (disregarded entity) or an S corporation or a C corporation. They all have advantages and disadvantages, but everything done in the company is above the line on your 1040 form.
You do want to use an LLC, because it will give you twice the asset protection of a corporation. You can tax your LLC any way you want. The asset protection tip is use an LLC. You can easily create your own llc, and learn how to manage it, in addition to getting tons of great tax tips.
However you do it, you need to learn how to put your adjusted gross income on a diet. It’s almost a guarantee your CPA and your Attorney won’t do it for you. Use the materials I have prepared, and you will never be sorry.