||Ask the Dollar Diva
How can I reduce my adjusted
Dear Dollar Diva,
What are some prudent, relatively low-risk ways for a taxpayer to
reduce Adjusted Gross Income and thereby allow a greater percentage
of his itemized deductions to be recognized? Also, how can I find
an Adviser to help with this kind of question? Do I need a separate
financial planner, tax accountant/lawyer and estate planner?
Reducing Adjusted Gross Income should be the goal
of every taxpayer. AGI has an impact on the following itemized deductions:
Casualty and theft losses
Job related expenses such as tools, travel, job
education, union dues, uniforms
Other miscellaneous deductions such as tax preparation
fees and investment expenses
To reduce AGI, look at the first page of your Form
1040. Examine each line of income and adjustments, and figure out
what you can do to make the bottom line smaller. Here are some suggestions:
| Wages, salaries
|| Make maximum contributions to 401(k) and
other employer-sponsored, tax-deferred plans.
| Taxable interest and dividends
|| Put your savings in tax-exempt money market
funds; for medium- to long-term investments that are not tax
deferred, invest in Treasury
efficient mutual funds and tax-exempt municipal bonds.
| Business income -- Schedule C
|| The IRS allows you to deduct all "ordinary
and necessary" business expenses -- make sure you do. Publication
334, Tax Guide for Small Business is a good resource for
the Schedule C filer.
| Capital gains
|| Adopt a buy-and-hold investment strategy;
invest in tax
efficient mutual funds.
| IRA distributions
|| Don't touch your IRA until you retire.
| Social Security benefits
|| If you're retired and collecting social
security, don't roll your IRA into a Roth if it's going to increase
the amount of Social Security that will be taxed.
| IRA deduction
|| Make maximum contribution allowed.
| Student loan interest; moving expenses
|| Don't forget to take these deductions.
How do I find an Adviser?
If all you need is help with your income tax, an enrolled
agent can be a less expensive alternative to a CPA. If your
financial situation is complex and you need help with tax, financial
planning and estate issues, I suggest you find a good certified
public accountant. You may not need a separate financial planner,
tax accountant/lawyer and estate planner, but if you do, a good
CPA will refer you to an office where you can find the help you
The best way to find a CPA or an enrolled agent is
to ask for referrals from your friends, relatives, neighbors, acquaintances,
co-workers and anyone else with financial needs similar to your
When you find one or two who will not charge you for
an introductory meeting, set up appointments with them. For tax
professionals, the best time to do this is between April 15 and
Licensed professionals must have their licenses displayed.
They will usually have their credentials framed and accessible.
If they don't, I'd wonder why.
At each visit, ask for the cost. There's no hurry;
you've lived without a financial professional this long, you can
live without one until you find one you like and trust. It is best
to start slowly; let him give you a quote to do your tax return,
and if it sounds fair, let him do it. If you're happy with the job,
the relationship will build from there. If you're not, resume your
-- Posted: May 24, 2000