We often plan certain things to be prepared for whatever holds in the future. The key to planning is finding a method that will benefit us in the longest run. In the tax world, the concept of tax planning is to organize your fiscal matters so that you end up with the least amount of payable taxes as possible. As you all know, your adjusted gross income is a key element in figuring out your taxes as tax rates and credits are dependent on it.
A taxpayer’s adjusted gross income (AGI) is used to determine how much of your income is taxable. This year, you can lower your AGI by planning ahead today that will benefit you in the long run. AGI is the difference of the revenue of all your income and any adjustments or deductions towards that. Below are a few tips on what you can do now to lower your AGI:
Understand how adjusted gross income (AGI) affects taxes
- Your AGI and tax rate are crucial aspects to sorting out your taxes. Therefore, the lower the AGI, the lower the tax rate, and the less tax you pay.
- Making adjustments during the year can help lower your AGI. For instance, contributing to a health savings account, claiming educator expenses if you are a qualifying educator or paying student loan interest.
Retirement savings can lower AGI
- Contributing money to a retirement plan at work (401K plan)
- Investing in a traditional IRA plan
- self-employed SEP, SIMPLE, and qualified plans
These are just a few methods that can help you lower your AGI. If you wish to have the least possible tax payable, it is greatly suggested that you start tax planning now. It may be a little more work now, but we all know that nothing great comes easily. If you have any questions in regards to lowering your AGI or tax planning, don’t hesitate to contact your DDK tax advisor!
