How to Maximize Your Deductions With a High Adjusted Gross Income
- 1). Gather all income and expenses together. Knowing what your current tax rate is is helpful, but knowing what all of your sources of income and where you spend your money is crucial. Before you can reduce your taxes, you need this information.
- 2). Refinance your home if it makes sense to do so. When you refinance your home, you may be able to cash out some of your home equity. The IRS allows you to deduct interest on up to $100,000 of a home equity loan, as of 2011. This provides you with additional money you may use for investment purposes or to simply put into savings in addition to a tax deduction.
- 3). Give money away. The IRS allows you to give away up to $13,000 per year tax free. You may give this to your favorite charity and take a deduction for this amount. Given the choice, you may find this money better used by the charity than by the government. This amount may be given away each year.
- 4). Itemize your deductions. Even if you're better off taking the standard deduction, this may be opening you up to the Alternative Minimum Tax. The IRS doesn't allow you to take a standard deduction when you pay the AMT. Instead, your standard deduction is added back into your income and may be causing you to pay more in tax than you have to. If you know you're subjected to this tax, itemize your deductions even if they amount to less than the standard deduction, as the itemized deductions effectively lower your income and thus your tax liability.
- 5). Contribute more to retirement plans. Contribute as much as you can to your qualified retirement accounts. If you're using private investment accounts to save money, redirect some or all of this money to your company's retirement plan. If you're a business owner, set up your own retirement plan with the company, but also use an executive bonus plan. Executive bonus plans allow you to move money out of the business as a bonus payment, taking a tax deduction in the process. Executive bonus plans often use cash-value life insurance as the investment. These life insurance policies allow tax-free growth and tax-free policy loans and withdrawals as long as the policy remains in force. Combined, a company retirement plan and executive bonus plan could substantially reduce your adjusted gross income.
