5 Legal Ways to Lower Your Adjusted Gross Income

In the United States, a taxpayer’s adjusted gross adjusted income is their total income after subtracting all allowed deductions. This number is important because it is used when preparing a tax return and sets the benchmark for determining other allowed benefits. Below is a list of 5 legal ways to lower your adjusted gross income.

1) Take all available deductions

This may seem obvious, but you would be surprised to learn how many people do not take advantage of all the deductions available to them. The IRS tax code is long, complicated, and almost always being modified by Congress. Unless your tax return is simple and straightforward, then we highly recommend seeking out the help of a tax professional to determine all the available deductions.

2) Make charitable contributions

Almost any one who itemizes their deductions knows that donating to approved charities can lower you taxable income. But making these kinds of donations, and keeping your receipts, is something all taxpayers should get in the habit of doing all year round. Charitable donations can be as simple as telling your employer to take a little out of every paycheck to donating a vehicle that you no longer use.

3) Pay extra into your 401(k)

Contributing extra to a 401(k) or traditional IRA plan is one of the best methods to lower your taxable income. Although most individuals must make 401(k) contributions throughout the year, some plans allow you to contribute extra money thus lowering your adjusted gross income even further.

4) Defer income until next year

If you can defer some of this year’s income until next year you will have lower taxable income this year and thus have a lower tax liability. This tactic is easier for self-employed individuals, but can work for numerous other taxpayers as well.

5) Use your credit card for year-end expenses

If you have deductible expenses (such as business or medical expenses) at the end of the year then consider paying them off with your credit card. Then you can claim the deduction this year but wait to pay off your credit card until next year.