Are you looking to reduce your taxable income and save money on taxes? Are you aware of the deductions that are directly deducted from gross income to determine Adjusted Gross Income (AGI)? Knowing the right deductions can be the key to saving money on taxes.
At Creative Advising, we understand the importance of reducing your taxable income while still being compliant with the IRS. We are certified public accountants, tax strategists and professional bookkeepers and we have the experience and knowledge to help you determine the deductions that will best suit your financial situation.
In this article, we will discuss the deductions that are directly deducted from gross income to determine AGI. We will explain which deductions are available, how to claim them, and how they can help you reduce your taxable income.
By understanding the deductions available, you can maximize your savings and reduce your taxable income. Our team of certified public accountants, tax strategists and professional bookkeepers can help you understand the deductions that are available and how to claim them.
Keep reading to learn more about the deductions that are directly deducted from gross income to determine AGI and how you can save money on taxes.
Standard Deduction
The standard deduction is a lump-sum allowance you can subtract from your adjusted gross income to arrive at your taxable income. For 2019, single taxpayers can claim a standard deduction of $12,200, while married couples filing jointly can claim twice that amount, or $24,400. The amount is adjusted annually for inflation, and the amount will be higher for the 2020 tax year.
If you don’t itemize your deductions, taking the standard deduction means that a predetermined portion of your overall income won’t be taxed. For lower-income taxpayers, this can mean a significant reduction in the amount of tax due. The standard deduction is only available if you are not itemizing deductions that exceed it.
Are there specific deductions that are directly deducted from gross income to determine AGI?
Yes, there are specific deductions that are taken off your gross income to determine AGI, or adjusted gross income. These deductions generally include alimony paid, health savings account contributions, qualified retirement plan contributions, and a few other items. Each of these deductions are taken before you then apply the standard deduction or itemized deductions to get your taxable income. One particular category of deductions that can be taken directly from your gross income to determine AGI is above-the-line deductions. These include common adjustments to income like health savings account contributions, IRA contributions, student loan interest payments, and educator expenses, among others.
At Creative Advising, our tax strategists have helped many clients maximize their deductions to minimize their federal income taxes. We do this by leveraging both our knowledge of the tax code and our strong relationships with our clients. We help our clients understand their eligibility for deductions and look for possible new deduction opportunities that may be available.
Itemized Deductions
Itemized deductions are an important part of the tax game; they can help you keep more of your money in your pocket. Itemized deductions can often be larger than the standard deduction, providing an even larger tax break.
Itemized deductions are claimed on your 1040 tax form and can include items such as mortgage interest, property and state tax paid, charitable donations, and unreimbursed medical costs and out-of-pocket expenses. Each expense is then subtracted from your total income gross income known as Adjusted Gross Income (AGI).
If you want to get the most out of your tax return, you should look at your itemized deductions and compare them to the standard deduction. If your itemized deductions exceed the amount of the standard deduction, then you should itemize your deductions.
Are there specific deductions that are directly deducted from gross income to determine AGI? Absolutely! According to Tom Wheelwright, CPA and tax strategist, AGI is calculated by first subtracting certain deductions from your gross income. Some of these deductions include student loan interest, alimony payments, Moving Expenses, self-employed health insurance premiums, and contributions to qualified retirement accounts with taxes paid on those contributions.
By understanding itemized deductions and how they work to reduce AGI, taxpayers can make the most of their return and keep more money in their pocket.
Retirement Plan Contributions
When making contributions to retirement plans like 401(k)s, IRAs, and other kinds of pension plans, the amount you contribute towards it is deducted from your gross income. This means that it directly reduces your taxable income and is considered an above-the-line deduction that contributes towards the Adjusted Gross Income (AGI). This is an important deduction to consider since it may reduce your tax liability significantly when it comes to filing taxes.
Retirement plan contributions also provide other financial benefits besides the direct deduction. In some cases, retirement plans are a great incentive for businesses to provide to their employees, as the contributions they make into the plan are eligible for legal tax deductions. Furthermore, many companies offer employer matching contributions, so contributions made may be doubled without increasing out-of-pocket expenses. This is a great incentive for building and securing retirement savings in the long term.
It is important to note, however, that contributions made to a retirement plan are subject to limitations. There are annual maximum contribution limits for each retirement plan that must be considered when planning for retirement savings. These limits may change each year, so it is important to keep up-to-date. Nonetheless, understanding the implications of retirement plan contributions and the different types of retirement plans can help you make the best decision for yourself when it comes to retirement savings.
Health Savings Accounts
Health Savings Accounts, or HSAs, are one of the most beneficial tax strategies you can use when it comes to reducing your Adjusted Gross Income (AGI). An HSA is a tax-deductible account used to pay for qualifying medical and dental expenses. Contributions to an HSA are deductible from income up to a certain limit and can be used to pay for eligible medical expenses or can be invested in mutual funds or other investments to help you save for the future.
HSA contributions are among the most beneficial deductions for reducing AGI, as it is the only individual account that provides a triple tax advantage. Contributions into the account can be tax-deductible up to a certain limit, the growth of money within the account is tax-free, and any withdrawals for qualified medical expenses are tax-free as well. This means that if you are in a high tax bracket, HSAs can save you a significant amount in taxes.
Are there specific deductions that are directly deducted from gross income to determine AGI? Yes, certain deductions – including, but not limited to, the standard deduction and itemized deductions – are directly subtracted from your gross income to determine your AGI. Retirement plan contributions, Health Savings Accounts, and certain taxable Social Security benefits may also have an effect on your AGI. It is important to consider all deductions when calculating your adjusted gross income to ensure you are taking full advantage of your available tax savings.
Taxable Social Security Benefits
Taxpayers can also have Social Security benefits that are taxable, depending on the total amount of income received for the year. When it comes to taxable Social Security benefits, the trick is to find the balance between optimizing taxable and nontaxable income. By spreading out the taxable Social Security benefits to prior tax years, taxpayers can reduce their taxable Social Security income and lower their current tax liabilities.
Are there specific deductions that are directly deducted from gross income to determine AGI? Yes, there are specific deductions that are directly deducted from gross income to arrive at Adjusted Gross Income (AGI). Examples include standard deductions and itemized deductions. The standard deduction that is offered to individuals and families are predetermined dollar amounts based off filing status and total family income. Individual taxpayers may also deduct itemized expenses such as medical expenses, mortgage interest, and charitable donations. When itemized deductions are higher than the standard deduction, taxpayers can itemize deductions on their tax returns. Additionally, taxpayers can also deduct contributions to qualified retirement plans to minimize current taxable income.
Overall, taxpayers should strive to reduce their AGI as much as possible to maximize their tax savings. By utilizing standard deductions and itemized deductions, taxpayers can lower their taxable income and take advantage of credits, deductions, and other tax planning strategies. By understanding the deductions that are available to taxpayers, they can reduce their taxable income and take advantage of the beneficial tax strategies in place.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
Furthermore, due to the dynamic nature of tax-related topics, the information presented in this article may not reflect the most current tax laws, rulings, or interpretations. It is always recommended to verify any tax-related information with official government sources or seek advice from a qualified tax professional before making any decisions or taking action.
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Please consult with a qualified tax professional or relevant authorities for specific advice tailored to your individual circumstances and to ensure compliance with the most current tax laws and regulations in your jurisdiction.”
