Year-End Strategies to Reduce AGI
Reducing your current-year adjusted gross income (AGI) is usually a tax-smart idea. Here are ten ways to reduce your AGI (and modified AGI) over the short and long run.
Closeup on AGI
AGI equals all taxable income items minus selected deductions for such items as deductible IRA and retirement plan contributions and alimony payments required by pre-2019 divorce agreements.
Lowering your AGI reduces your taxable income for the year and your exposure to unfavorable AGI-based provisions. For example, lowering AGI can increase the amount of Social Security benefits that you can receive federal-income-tax-free and increase your allowable higher education tax credits.
It’s not too late to reduce your AGI for the current tax year. Consider these last-minute tax planning strategies:
Sometimes taxpayers need to consider the long-term view — even if they might have to pay extra taxes in the short run. The following moves could help significantly over the long run, especially if tax rates are higher in future years:
Multiple Levels of Tax Savings
Some of these strategies can reduce both your regular federal income tax (FIT) bill and, if applicable, your NIIT bill. If you’re self-employed, some may also lower your self-employment tax bill. Finally, these strategies can also reduce your state income tax bill, if you live in a state that assesses a personal income tax.
Some strategies may take some time to implement, however. There’s no time like the present to identify AGI-reduction strategies that can help your situation. Contact your tax advisor for more information.