By reducing one’s AGI one can often increase a multitude of deductions and credits and reduce taxable Social Security or Railroad Retirement benefits. Here is an excellent case in point.
This past week-end was dedicated to figuring out “Where the Fakawi” and to catching up on lots of little 1040-related tasks – such as amending returns.
With one client additional information regarding annual dividend reinvestment sent to me after April 15th allowed me to properly calculate the cost basis of mutual fund shares sold in 2009. As a result a net capital loss claimed on the 2009 Schedule D, and carried over to Page 1 of the 1040, was increased by $545.00.
By increasing the capital loss I reduced the Adjusted Gross Income. And by reducing AGI I increased -
• the allowable Miscellaneous deductions from Schedule A (re: the 2% of AGI exclusion),
• total Itemized Deductions (re: the 1% “read my lips” reduction of total deductions, aka PEASE),
• the Making Work Pay Credit (the credit was reduced via AGI “phase-out”), and
• the American Opportunity Credit (the credit was reduced via AGI “phase-out”)
By reducing the AGI by $545.00 I got the client an additional refund of $219.00 on the Form 1040X (hey – better in the client’s pocket). The client was in the 25% tax bracket, but the reduced AGI yielded a “return” of a little over 40%!
So now do you believe that one’s Adjusted Gross Income is the most important number on the tax return?