I am glad to see the Presidential primary election focus on income tax rates. It creates a teachable moment for U.S. taxpayers and I will also jump into the discussion!
Many taxpayers concentrate on one line of their income tax return – the refund line. While it’s always pleasant or even thrilling to see that refund amount, it’s not the whole story about paying a lot or a little in taxes. Usually, a refund means the taxpayer overpaid tax throughout the year.
This tax season, I advise you to take a closer look at your Adjusted Gross Income. This line is well before your Taxable Income. It’s an amount that drives a lot of different tax savings steps. AGI determines how much of medical expenses or job-related expenses can be deducted to lower your overall tax rate. It determines whether you can deduct education expenses or how much of a child tax credit is allowed. It determines whether an IRA contribution is deductible.
Whatever your tax rate is now, 15% or 25% or something else, your goal for 2012 should be to bring it down. One place to start is figuring out if you can reduce Adjusted Gross Income by taking advantage of the tax savings steps available to you.