 |
|
There are several things that increase your AGI (Adjusted Gross Income: see your IRS Form 1040, line 37). One of the first things to remember is where possible invest so as to reduce your AGI rather than increase it. Reducing your AGI is like doing a little of your own erasing-reducing the figure that Sam gets to reduce. Here are two basic techniques.
Number One:
Make the fullest possible use of tax-deferred accounts like Individual Retirement Accounts. The law strictly limits the amount of income you can deduct from your AGI. But, contributing $4,000 every year ($5,000 if age 50 or above) in a Traditional IRA is an opportunity not to be missed. You may pay less tax now, and less tax overall if your withdrawals during retirement are taxed at a lower rate.
Number Two:
Consider investing in stocks or index shares that concentrate on growth, because they tend to pay low or zero dividends. The idea is that you build wealth through stock appreciation rather than accumulated dividends, and stock appreciation, unlike a fat AGI, is not taxed. With a stock that appreciates, but pays no dividend, Uncle Sam isn't interested until you trigger a capital gain by selling.
There's a third technique for lowering your tax bill that, while it won't reduce your AGI, does affect the way Uncle Sam wields the calculator. Be a long-term investor! Uncle Sam treats any investment of less than 12 months as "short-term," and taxes gains on such investments at the regular income tax rates. But capital gains on "long-term" investments (ones you have owned at least 12 months) get a break: if your tax bracket is 15% currently, your long-term gains are taxed at only 10%. Of course, if your tax bracket is above 15%, your long-term gains will be taxed at a higher rate as well, but current tax rates on long-term gains are lower than the rates for regular AGI income across the board.
For more information please make an appointment for consultation.
|
| |
|
