Reducing AGI

[kjpliny]

Besides maxing out 401k/IRA contributions, I'm trying to find a way to reduce our AGI for 2007. The AGI limits on a Roth IRA account for married filing jointly is raised to $156k, but we may be getting close to that and I don't want to go over it.

What you folks do to reduce AGI when your IRA contributions are already maxed?

 

[LOL!]

There is a big difference between reducing AGI and reducing taxable income.
You've got to lower your income.
If you get a bonus, have your company pay it in the next year.
Grow old, so in the year you reach 50, you can start contributing more to your 401(k) and IRAs.
Ask for a pay cut.
Make sure that in your after-tax accounts, you do not receive dividends nor capital gains distributions. You can choose the funds, so this should be easy to do.
Do not have an emergency fund in a high interest savings account or money market fund.
Sell your stocks and investments at a loss. You can deduct $3000 of excess capital losses against ordinary income.
If self-employed, have a ton of expenses or avoid making a profit.

 

[mickeyd]

You have the best kind of problem to have~you make too much this year and will make a bunch next year! Continue to invest in your taxable account in the most tax-efficient funds that you can find. Vanguard has a bunch of them. I like the TSM.

 

[jazz4cash]

If you have a flexible spending account benefit for health or dependent care, it will help reduce both AGI and taxable income

 

[Nords]

What you folks do to reduce AGI when your IRA contributions are already maxed?

Man, I'm trying hard to work up a sympathetic frame of mind here. Sorry to hear about this disaster.

I think the best way to "struggle" with this problem would be to donate to the Roth until it phases out, then finish the IRAs with non-deductible contributions to conventional IRAs.

Someday you'll be within the AGI limits (2010 if not before) and you can convert the conventional IRAs to Roths.

You could deduct up to $3000 in cap losses that exceed your cap gains. But taking a cap loss is a losing strategy to begin with, and the tax deduction is a pretty sorry consolation prize.

With a lot of caveats & limits you could also try to take rental real estate losses against your real estate income. Of course this is a lot easier with a bigger mortgage and and even bigger depreciation.

But you could also try to lump together the deductions and exceed the standard deduction-- accelerate next year's payments for property taxes, mortgage payments, and medical expenses into the current tax year. And again that usually requires a fairly substantial mortgage to beat the standard deduction.

 

[kjpliny]

I've been looking at VYFXX as a way to reduce AGI on after-tax money currently sitting in Emigrant Direct account. It works out to be about the same return, but would reduce agi a few thousand if the income is not taxable. Is a tax-free MM fund safer than a tax-free bond fund or about the same risk?

 

[LOL!]

If interest rates go up, the MM fund will still stay at $1 a share, while a bond fund will drop in NAV. But if interest rates go down, the MM fund will still stay at $1 a share, while a bond fund will go up in NAV.

Yes, it is safer.

 

[mathjak107]

anyone unhappy about paying to much in taxes send me the extra money, ill gladely pay the tax for you

 

[kjpliny]

Opened a Vanguard account and moved money into VYFXX...this should reduce my taxable interest income enough to keep the Roth limit away for another year.

Also, as a new years resolution, decided to track every dollar spent this year to see where it all goes. Played around with an older copy of Quicken but it seems too restrictive for me, so I'm just going to create a simple spreadsheet to record the activity and I can categorize it whenever I need to. Hoping I can identify some of the reasons my after tax savings isn't growing as fast as it should.

 

[d]

decided to track every dollar spent this year to see where it all goes

i did this for several years ... it was a real eye-opener and likely the single best financial move i ever made.

 

[runchman]

Ask for a pay cut.
Sell your stocks and investments at a loss.
If self-employed, have a ton of expenses or avoid making a profit.

But remember not to let the tail wag the dog - as others have said, it isn't a 'bad' problem to have. Anyone that wants to give me an extra buck, I'll gladly pay the 30 cents or whatever in taxes on it. Send 'em over....

- John

 

[Linney]

Reducing AGI is pretty hard. I thought I found a way to do it last year --- special arrangement , my company allows us to take unpaid days during our holiday shutdown week. So I did just that, reducing my income about 2%. Or so I thought. Turns out that we are on a 15 day lag for crediting time off. I just reduced my 2007 income! I don't need to do that, doh, so now I'll need to file a timecard adjustment for last month <SIGH>.

Take a look at the first page of your IRS Form 1040. The number at the bottom of that page is the one used to determine your Roth eligibility. Look at the income section and see if there is anything you can reduce or defer. Look at the adjustments section and see if anything applies there. And good luck.