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I am in a situation where I received a year-end bonus of $5,000 in 2008 that pushed my MAGI to $85K which is $5k above the maximum to claim the tuition and fees deduction (which means I lose out on a $2000 deduction and $500 in actual money, assuming 25% tax bracket.

So, my question is, are there any ways to lower a MAGI for 2008, even though it is now 2009, or am I just screwed out of the $500?

Any suggestions are greatly appreciated.

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if you had asked this question early in january there are some things that you could have done, but technically they are... (more)

momoman (Feb. 28, 2009 @ 12:22p) |

Property tax doesn't reduce MAGI though. It might work if you are looking at increasing itemized deductions, but that do... (more)

calwatch (Feb. 28, 2009 @ 2:50p) |

you are correct. the property tax on your primary residence is an itemized deduction and doesn't affect agi or magi.

pro... (more)

momoman (Feb. 28, 2009 @ 4:49p) |

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How about contributing to Traditional IRA?

You have till April 15th to contribute.

puddonhead said: How about contributing to Traditional IRA?

You have till April 15th to contribute.


From what I understand, for a traditional IRA in 2008, if your MAGI is above $63K, you get no deduction.

[del]

He can't do a traditional IRA at that income level cause he's probably using an employer plan. Your only bet is a health savings account contribution. Alliant Credit Union is a good place. You may not have the correct kind of health insurance though. I will say this though that I've rarely seen them audit to check what kind of insurance you have for contributions.

edit: Never mind, thought he was talking about student loans.

If you do not have an open traditional IRA account, can you start one now and contribute 2008 dollars to it before filing your taxes?

This post is the reason why I have already tentatively planned out my deductions/tax liability for both 2009 and 2010 so that I can maximize credits/phaseout limits and minimize taxes by doing things in advance.

donthurtme said: If you do not have an open traditional IRA account, can you start one now and contribute 2008 dollars to it before filing your taxes?

Yes if you do it before April 15 2009

tripleB said: This post is the reason why I have already tentatively planned out my deductions/tax liability for both 2009 and 2010 so that I can maximize credits/phaseout limits and minimize taxes by doing things in advance.
you're friggin awesome, tripleB.

the man got a bonus and a wrench was thrown into his plans. cut him some slack; he obviously has paid attention.

bjg31483 said: puddonhead said: How about contributing to Traditional IRA?

You have till April 15th to contribute.
From what I understand, for a traditional IRA in 2008, if your MAGI is above $63K, you get no deduction.
OP, the key here is whether or not you were covered by a retirement plan at work and whether you are married or single.

Traditional IRS: What's new for 2008:

Modified AGI limit for traditional IRA contributions increased. For 2008, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

* More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),
* More than $53,000 but less than $63,000 for a single individual or head of household, or
* Less than $10,000 for a married individual filing a separate return.

For 2008, if you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $159,000 but less than $169,000.

solarUS said:
the man got a bonus and a wrench was thrown into his plans. cut him some slack; he obviously has paid attention.


WAAAAAH! The economy is terrible, unemployment is about 10% in pretend government numbers and probably closer to 15% in real world numbers, theres a huge credit crunch and this guy has to figure out how to deal with the free $5k bonus his job gave him. WAAAAAH!

As far as I know, OP you are screwed out of $500.
Think of it as a small donation to the Wall Street Bankers.

infowarsDOTcom said: As far as I know, OP you are screwed out of $500.
Think of it as a small donation to the Wall Street Bankers.

Too bad they are not legitimate non-profits--then it would be a charitable contribution...

infowarsDOTcom said: As far as I know, OP you are screwed out of $500. Think of it as a small donation to the Wall Street Bankers.Think of it as paying for six weeks of one Congressman's pay increase they voted themselves in December.

tripleB said: solarUS said:
the man got a bonus and a wrench was thrown into his plans. cut him some slack; he obviously has paid attention.


WAAAAAH! The economy is terrible, unemployment is about 10% in pretend government numbers and probably closer to 15% in real world numbers, theres a huge credit crunch and this guy has to figure out how to deal with the free $5k bonus his job gave him. WAAAAAH!


I thought that financial gain was the main purpose for fatwallet in the first place.

I am still trying to figure out why peope who make 85K need taxpayer support for their education.....

Battleshipnote said: I am still trying to figure out why peope who make 85K need taxpayer support for their education.....
i know guys who make more than 85k who are broke as a joke...get you some kids in college, a wife, a house, a car, a retirement fund and a couple hobbies and the money doesnt go very far.

(not me, i am single, unglamorous and filthy rich, lol)

solarUS said: Battleshipnote said: I am still trying to figure out why peope who make 85K need taxpayer support for their education.....
i know guys who make more than 85k who are broke as a joke...get you some kids in college, a wife, a house, a car, a retirement fund and a couple hobbies and the money doesnt go very far.

(not me, i am single, unglamorous and filthy rich, lol)


Compared to someone who dropped out of high school and cant get a job, someone making $85k is rich.

Battleshipnote said: I am still trying to figure out why peope who make 85K need taxpayer support for their education.....Ah, reward failure, punish success!

Consider two students:

During their college experience, Bill and Mary each take out student loans totaling $200,000.

After receiving his MFA degree, Bill gets a job paying $27,500 as an assistant curator at a small city-run art museum where the cost of living is low. After five years, Bill works his way up to head curator, with a top potential salary of $50,000. Bill gets to deduct his student loan interest indefinitely. Bill fulfills his dream of staying in the art world. He loves to serve as a guest lecturer at a local junior college, where he is perceived as quite the dashing figure among the female art students.

After receiving her MS degree in civil engineering, Mary gets a job paying $65,000 working for a top firm based in an expensive downtown area. She works many 70-hour weeks, foregoing much of her personal life. Her firm relocates her three times in six years. Even then, she spends 40% of her time on the road, often working in remote areas or in demanding conditions. She designs and oversees the construction of major public works involving billions of dollars of investment and great public utility. After five years, she works her way up to a salary of $100,000.

Bill, who indulged his artistic whims, deducts his student loan interest. Society is telling students, "go ahead and spend all that money preparing for a low-paying career, we'll help you."

Mary, who worked her butt off, cannot deduct her student loan interest. Society is telling students, "if you succeed and make major contributions to society, we'll penalize you."

Xnarg you routinely advocate personal responsibility and blast handouts.

Bill and Mary both chose their career paths, Bill clearly does have to make some sacrifices on 27k, Mary wants her cake and to eat it too, shes eating my figgin birthday cake.

Battleshipnote said: Mary wants her cake and to eat it too

I never understood this. Whats the point of having cake if you cant eat it?

Battleshipnote said: Xnarg you routinely advocate personal responsibility and blast handouts.

Bill and Mary both chose their career paths, Bill clearly does have to make some sacrifices on 27k, Mary wants her cake and to eat it too, shes eating my figgin birthday cake.
By giving tax breaks for tuition loan interest for lower income workers but not for higher income workers, society is subsidizing lower-paying careers and encouraging people to do what they want rather than what society values enough to pay more. This is counterproductive.

We should either stop all tuition loan interest tax deductions of give them to everyone regardless of income.

Mary isn't eating your cake, Bill is.tripleB said: Battleshipnote said: Mary wants her cake and to eat it tooI never understood this. Whats the point of having cake if you cant eat it?Once you've eaten the cake, you don't have it anymore.

If you have some self-employment income, contribute to a SEP-IRA.

Just wanted to thank all of those who made legitimate responses. I appreciate your suggestions...

I'm filing as single (engaged and living with fiancee), I do participate in an employer retirement plan (401K), and due to that, it looks like I'm just screwed out of the $500 at this point, which is kinda what I had figured after reading through the IRS pubs.

I was over an IRS income cutoff too, last year, but since I had some idea prior to my year end bonus I bumped up my 401k contributions (which of course are now worth very little, thank you stock market) a lot for the last couple of months to reduce my taxable income. Were you not informed of this year bonus for last tax year till after the fact? (Ie they're telling you now in Feb 2009 that you got a bonus in Dec 2008?) Or was it just very late in Dec and no time to react?

Xnarg said: We should either stop all tuition loan interest tax deductions of give them to everyone regardless of income.

That is the catch--

I will pay higher taxes because I make more money, but why penalize me on top of it by taking away my deductions??? Are my kids somehow less expensive since I earn more? Did my student loan interest payments count less?

I won't even try to understand what AMT really is and when it kicks in...all I know is at some point I will end up losing most of my deductions and paying a higher percentage in taxes to begin with...

pitflyer said: I was over an IRS income cutoff too, last year, but since I had some idea prior to my year end bonus I bumped up my 401k contributions (which of course are now worth very little, thank you stock market) a lot for the last couple of months to reduce my taxable income. Were you not informed of this year bonus for last tax year till after the fact? (Ie they're telling you now in Feb 2009 that you got a bonus in Dec 2008?) Or was it just very late in Dec and no time to react?

The problem was that I was not informed at all that I'd be receiving a year-end bonus (and I figured maybe not this year due to the economy), and then it just appeared in my last paycheck for the year...and the following week, I got the nice little "congratulations on your year-end bonus" notice. In the past, we've always received notice the first or second week of December, so I don't know what happened this year.

computerquest said: Xnarg said: We should either stop all tuition loan interest tax deductions of give them to everyone regardless of income.

That is the catch--

I will pay higher taxes because I make more money, but why penalize me on top of it by taking away my deductions??? Are my kids somehow less expensive since I earn more? Did my student loan interest payments count less?...
ITA.

Many of these "tax cuts for the rich" are were really just leveling the playing field and not tax cuts at all. In reality, when the "tax cuts for the rich" were enacted, the rich ended up paying a greater share of federal income tax than they had without the "cuts."

tripleB said: Battleshipnote said: Mary wants her cake and to eat it too

I never understood this. Whats the point of having cake if you cant eat it?


The point is that after you eat your cake, you no longer have it. But you still want the cake.

bjg31483 said: Just wanted to thank all of those who made legitimate responses. I appreciate your suggestions...

I'm filing as single (engaged and living with fiancee), I do participate in an employer retirement plan (401K), and due to that, it looks like I'm just screwed out of the $500 at this point, which is kinda what I had figured after reading through the IRS pubs.


If you haven't already, you should come up with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.

Xnarg said: By giving tax breaks for tuition loan interest for lower income workers but not for higher income workers, society is subsidizing lower-paying careers and encouraging people to do what they want rather than what society values enough to pay more. This is counterproductive.



This assumes people somehow figure in the future deductability of their student loans in choosing a career path. If people thought this far ahead there would be no financial problems. I'm going to become a FA major for the lucrative student loan deductions, rather than a highly paid engineer that doesn't get a student loan deduction. I think were probably better off keeping those kind of thinkers out of the engineering field.

jcbrooksIf you haven't already, you should come up said: with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.

You can only deduct business expenses from actual business profits. You can't deduct 5k in expenses from a business with $5 in profit.

chris8796n said: jcbrooksIf you haven't already, you should come up said: ] with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.

You can only deduct business expenses from actual business profits. You can't deduct 5k in expenses from a business with $5 in profit.

you can depreciate bought items for a loss though, cant you? i only work in res RE rentals, so my rules are specific to that side and i am unsure about other business profit/loss situations.

jcbrooks said: bjg31483 said: Just wanted to thank all of those who made legitimate responses. I appreciate your suggestions...

I'm filing as single (engaged and living with fiancee), I do participate in an employer retirement plan (401K), and due to that, it looks like I'm just screwed out of the $500 at this point, which is kinda what I had figured after reading through the IRS pubs.


If you haven't already, you should come up with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.


This is a terrible example of a business and a great example of a hobby or simply a tax dodge. As a hobby, the losses won't be deductible and the expenses end up on schedule A, thereby actually RAISING MAGI.

Do not advocate out and out tax cheating. If there is no profit motive, there is no business.

chris8796n said: Xnarg said: By giving tax breaks for tuition loan interest for lower income workers but not for higher income workers, society is subsidizing lower-paying careers and encouraging people to do what they want rather than what society values enough to pay more. This is counterproductive.This assumes people somehow figure in the future deductability of their student loans in choosing a career path. If people thought this far ahead there would be no financial problems. I'm going to become a FA major for the lucrative student loan deductions, rather than a highly paid engineer that doesn't get a student loan deduction. I think were probably better off keeping those kind of thinkers out of the engineering field.Why should we provide greater support for people who achieve less in terms of doing things that society values?

Why should society share in less effective education investment decisions while penalizing the better decisions ones?

chris8796n said: jcbrooksIf you haven't already, you should come up said: ] with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.

You can only deduct business expenses from actual business profits. You can't deduct 5k in expenses from a business with $5 in profit.


Schedule C lets you report a total loss after everything is accounted for. I think what you are confusing is the loss from certain categories are limited by your profit. Such as those from form 8829.

shadow520 said: jcbrooks said: bjg31483 said: Just wanted to thank all of those who made legitimate responses. I appreciate your suggestions...

I'm filing as single (engaged and living with fiancee), I do participate in an employer retirement plan (401K), and due to that, it looks like I'm just screwed out of the $500 at this point, which is kinda what I had figured after reading through the IRS pubs.


If you haven't already, you should come up with a side business. It doesn't take much, and opens you up to another easy $5k of deductions. Even if your side business is going to a garage sale once a month and finding something you can sell on eBay for a $5 profit. Or something you can do on travels - like photography. Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.


This is a terrible example of a business and a great example of a hobby or simply a tax dodge. As a hobby, the losses won't be deductible and the expenses end up on schedule A, thereby actually RAISING MAGI.

Do not advocate out and out tax cheating. If there is no profit motive, there is no business.


How is buying at garage sales to sell on eBay for more than you paid not a profit motive? Or taking pictures and selling them not a profit motive?

jcbrooks said: ...How is buying at garage sales to sell on eBay for more than you paid not a profit motive? Or taking pictures and selling them not a profit motive?In recent years, the IRS has really cracked down on people who generate losses (and thus tax benefits) with their hobbies.

If you buy $1,000 worth of stuff and sell it for more than spent, including expenses, then that's a legitimate business activity.

However, if you buy that same stuff, sell it for more than you spent on the product but you lost money when considering your expenses (e.g., home office, phone expense, mileage, internet access, etc.), then that's probably not a legitimate business and you should not be able to deduct your loss.
jcbrooks said: ...Just sell 1 or 2 photos a year, and as long as you take photos on every trip, you can start writing off everything. Flights, meals, hotels, driving around, your computer, internet and utilities, office supplies, etc, etc.There is NO way that the IRS is going to allow what you suggest. You can't "just sell 1 or 2 photos a year" and then write off all your expenses. That's clearly a tax scam.

See: IRS: Is Your Hobby a For-Profit Endeavor?

Skipping 11 Messages...
calwatch said: Property tax doesn't reduce MAGI though. It might work if you are looking at increasing itemized deductions, but that doesn't apply here.you are correct. the property tax on your primary residence is an itemized deduction and doesn't affect agi or magi.

property tax on investment property does reduces agi and magi since it reduces the rental income reported, but i don't think this will help the OP.



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