Anyway To Reduce AGI

grandcanyon | Jan 23, 2019 | 8 posts since 2019

All the interest I made this year bumped me into the next tax bracket by abut 5K. The extra 5K will cost we 12K. I'll probably give all me interest in taxes due to the bump. Can you gift anyone someone to reduce AGI. Of course, I can't do an traditional IRA because of income and covered by work plan. The HSA doesn't give me enough. Am I SOL?

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Answers

RickZ | Jan 23, 2019 | 218 posts since 2010

Maybe I'm missing something, but it seems impossible that an extra $5K in income can result in an additional $12K in taxes. When you get bumped into a higher tax bracket, you only have to pay the higher percentage on the incremental amount that is above the bracket below, not on the full amount of your income. In other words, your marginal tax rate, which is the bracket you got bumped into, is much higher than your effective tax rate, which is your overall tax rate, due to the way that the tax brackets are structured. For example, if you're single and have taxable income (not AGI) of $87,801 then you'd be in the 24% bracket by $5K. However, your tax liability would only be $16,089.50 which equals 18.325%. https://www.irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions

grandcanyon | Jan 23, 2019 | 8 posts since 2019

Ah, awesome thanks for the info. I read it wrong. I thought it bumped you on the full amount to the higher bracket thus 8% more on all my AGI. Thanks RickZ!

Diehard | Jan 23, 2019 | 113 posts since 2018

Wish I had an answer. I'm in the same boat with my AGI. My taxes seem to go up every year, due to all the interest. Find a good tax person and run it by them.

I don't have any write-offs, no deductions (except for the standard deduction which is now $12,000 for single people), and I don't have anything to itemize. I think about 90% of my interest earned, goes right back out the window... I use it to pay the tax bill every year.

I considered opening a tax-exempt money market mutual fund. With a whopping 1.17% interest rate. Never did do it. Or maybe just keep my savings in a very low yielding bank acct? Retirement is overrated! :-) These are not the "golden years", not with that big tax bill every April. BUT, I'm very grateful to HAVE savings, and very thankful to be retired. I just can't count on having any play money (interest).

me1004 | Jan 23, 2019 | 1,379 posts since 2010

Well, all else aside, I think it is too late to do anything, whatever could be done would have had to be done by Dec. 31, 2018. Well, I don't remember if IRA rules allow you to make deposits to an traditional IRA (not a Roth) for 2018 until maybe March 31, 2019 -- but you already ruled that out anyway.

All you can do now is make sure you don't overlook any deductions you might not have known you can take. And we're under new rules for that with the changes made last year.

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