Tax season is approaching quickly. Few people feel comfortable filing their taxes without a professional looking at their tax return. One of the most critical aspects of a tax return is the adjusted gross income. The adjusted gross income determines which tax bracket a person falls under. For people who are married, there are different thresholds than people who are single.
Depending on the tax return, last year’s adjusted gross income can be in different locations.
- Form 1040, Line 38
- Form 1040A, Line 21
- Form 1040EZ, Line 4
However, it is essential for taxpayers to know why knowing a person’s adjusted gross income is so beneficial. There are also tax strategies that people can utilize to lower adjusted gross income.
The standard deduction lowers the taxable income that a person earns. For a single taxpayer, the standard deduction is $12,000 per year. However, a married couple filing jointly can use a standard deduction of $24,000. Without any other adjustments, a married couple earning $40,000 per year will only pay federal income taxes on $16,000 of income.
There are other deductions available to reduce a person’s adjusted gross income. Each year, a person can invest money in retirement accounts like an IRA or 401(k). Each investment option offers different contribution limits.
In 2018, the contribution limit on a 401(k) was $18,500 for most taxpayers. In 2019, the contribution limit is getting increased to $19,000. Anyone who wants to reduce their tax burden should consider investing more money in pre-tax investment options.
Other Tax Suggestions
Some people feel like paying someone for tax advice is a waste of money. However, for many people, taxes are one of the largest expenses each year. As a result, paying someone to help reduce your taxes is an excellent investment. By lowering a person’s adjusted gross income, it is possible to save thousands of dollars on federal income taxes every year.