If a taxpayer can manage their Adjusted Gross Income (AGI) in 2021 to stay below $150,000 (or $75,000, if single), the tax savings related to even small reductions in AGI can be incredible.
Here are just a few options for reducing AGI:
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Maximize contributions to a Section 401(k) plan, reducing wage income. Employees can contribute as much as $19,500 in 2021.
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Eligible taxpayers can contribute up to $6,000 ($7,000 if aged 50 or over) to a deductible IRA.
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Self-employed taxpayers should maximize contributions to a deductible SEP or SIMPLE plans.
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If available, contribute to a Health Savings Account. For family care, a taxpayer can contribute as much as $7,200 ($8,200 if age 55 or older)
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For taxpayers who claim the standard deduction, maximize the $600 charitable deduction available in computing AGI.
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Don’t leave capital losses on the table. If you’re going to have a capital gain in 2021, harvest capital losses to fully offset the gain and also reduce other sources of income by up to $3,000.
How big a deal can a reduction in 2021 AGI be for the right family? A married couple with three children—two under age 6—could save nearly $10,000 in taxes by reducing AGI by just $10,000, from $160,000 to $150,000.
Source: FORBES