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Minimize AGI


Reducing your adjusted gross income (AGI) for 2009 can produce multiple benefits, including…

  • Increasing deductions for expenses that have percentage-of-AGI deduction floors.
  • Examples: Medical expenses (7.5% of AGI), casualty and theft losses (10%), and miscellaneous expenses, which include unreimbursed employee business expenses and legal and investment expenses (2%).

  • Reducing the portion of Social Security benefits subject to income tax.
  • Reducing premiums for Medicare Part B, which now vary by income shown on the tax return. (Income shown on the 2009 return will determine the size of the premium for 2011.)
  • Probably the best way to reduce AGI is to make a deductible contribution to an IRA… or a pretax contribution to an employer-sponsored 401(k) or a SIMPLE plan… or a tax-deductible contribution to a Keogh plan for the self-employed.

    People age 50 and older can make larger “catch-up” maximum contributions — $6,000 instead of the normal $5,000 to an IRA, and $22,000 instead of the normal $16,500 to a 401(k). Other ways to reduce AGI…

  • Postpone receipt of taxable income, such as optional IRA withdrawals, until after year-end.
  • Defer investment gains — especially short-term gains subject to ordinary tax rates — until after year-end, while taking losses before year-end.
  • Maximize business expenses paid by year-end to reduce self-employment income.
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    Source: Sidney Kess, an attorney and CPA in New York City. Mr. Kess is coauthor/consulting editor of Financial and Estate Planning and coauthor of 1040 Preparation and Planning Guide 2009 (CCH). Over the years, he has taught tax law to more than 700,000 tax professionals.
    Date: November 1, 2008 Publication: Bottom Line Personal
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