How to minimize federal tax owed?

Question

I am trying to figure out how to minimize the amount of federal tax I have to pay and am wondering if I am missing any ways to reduce my adjusted gross income. I live in California and make about $50,000 per year. I am not a student. I have a 401k which I contribute the maximum amount to. I also contribute to a Health Savings Account and an IRA. Apart from these three ways, are there any other methods to reduce AGI?

Answer 1

I'm going to assume you really mean AGI and not simply itemized deductions like mortgage payments.

You've covered most of the ones you want (like you probably don't want to get divorced just to pay alimony as a way to reduce AGI).

The only other major one is any student loan interest you may have paid.

I'd also like to suggest you check out the Fair Tax http://www.fairtax.org/site/PageServer

Imagine getting a paycheck each week for almost a full $1,000.00 (50,000/52 weeks) - no withholdings for FICA, Fed Tax, Medicare, etc.

In addition, how about a $200 check each month as a prebate to cover the taxes on essential items (this is a way to insure those at the poverty level still pay no tax).

Answer 2

Well, the biggies are either to buy a house or to have a baby. I hear there's additional hidden expenses involved in both those options, though, so you'd better do some research on your own before you decide to jump into things.

Other than that -- donate a lot of money to charity? Or if you're planning to further your education some day, start a 529 savings account? Those are the only two I can think of off the top of my head.

Answer 3

Other than buying a home and deducting the interest you are stuck just like millions of Americans.   Can drop your AGI to low because the Alternative Minimum Tax will kick in.

Death and paying taxes the sure bets in the world.