Year-End Moves to Reduce Adjusted Gross Income on 1040
Sep 25, 2025
As a financial advisor, understanding adjusted gross income on 1040 is central to providing real value for clients. AGI isn’t just a tax figure—it’s the starting point for determining eligibility for deductions, credits, and ultimately, a client’s total tax liability. Advisors who can proactively help clients lower AGI through year-end strategies not only reduce tax burdens but also demonstrate expertise in holistic financial planning.
In this blog, we’ll break down why AGI matters, explore practical year-end strategies, and highlight how you can turn AGI planning into a long-term financial advantage for your clients.
Why Adjusted Gross Income on 1040 Is So Important
The adjusted gross income figure, found on line 11 of IRS Form 1040, is more than just a calculation—it acts as the cornerstone for nearly all tax planning decisions. For financial advisors, understanding AGI is essential because it influences:
Tax Brackets: Lowering AGI can shift a client into a lower tax bracket, reducing the percentage of income taxed.
Deductions: Many deductions, like medical expenses, are only available if they exceed a percentage of AGI. Lower AGI = easier to qualify.
Credits: Credits such as the Child Tax Credit and the Earned Income Tax Credit have AGI thresholds.
Retirement Contributions: Eligibility for Roth IRA contributions phases out at higher AGI levels.
In short, AGI is not just a number—it’s the foundation of strategic tax planning.
Key Year-End Moves to Lower AGI
Financial advisors can guide clients toward effective year-end strategies that directly reduce AGI. Let’s explore them in detail:
1. Maximize Retirement Contributions
Encouraging clients to contribute to traditional IRAs or 401(k)s before December 31 is one of the most straightforward ways to reduce AGI. These pre-tax contributions lower taxable income immediately, while simultaneously growing retirement savings. For high-earning clients, pushing contributions to the maximum limit can result in thousands of dollars in tax savings.
2. Leverage Health Savings Accounts (HSAs) and FSAs
HSAs are a powerful yet often overlooked tool. Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses. FSAs also reduce taxable income, though they are “use it or lose it” accounts. Advisors should review client eligibility and encourage maxing out contributions when possible.
3. Capital Gains Harvesting
Capital gains can significantly inflate AGI, but advisors can counteract this through tax-loss harvesting. By strategically selling underperforming investments, losses can offset gains. Even better, up to $3,000 of net capital losses can offset other income annually, directly lowering AGI.
4. Timing of Income and Expenses
For clients with flexible income—such as business owners or independent contractors—shifting income to the following year and accelerating deductible expenses in the current year can create immediate AGI reductions. Advisors should review cash flow and invoicing schedules to optimize timing.
5. Charitable Giving Strategies
While charitable deductions are technically applied after AGI is calculated, strategies such as donating appreciated securities can reduce capital gains and overall tax liability. Donor-Advised Funds (DAFs) are also a powerful option for high-net-worth clients seeking larger deductions in the current year.
6. Education-Related Deductions
Certain education expenses, like student loan interest (up to $2,500), can reduce AGI directly. For clients or their dependents pursuing higher education, this is a straightforward way to optimize both AGI and long-term financial goals.
Case Study: Turning AGI Planning into Real Value
Consider a client earning $150,000 annually with a taxable portfolio and no AGI-focused strategy in place. Without guidance, their AGI is locked in, limiting their ability to qualify for certain deductions and reducing overall tax efficiency.
Now, imagine applying year-end moves:
$19,500 contributed to a 401(k).
$6,000 contributed to an HSA.
$3,000 harvested capital losses.
$2,500 student loan interest deduction.
That’s over $31,000 in AGI reduction, moving them into a lower effective tax bracket, increasing eligibility for certain credits, and potentially saving thousands in taxes.
For financial advisors, demonstrating this kind of tangible impact builds trust and deepens client relationships.
How Advisors Can Make AGI Planning a Routine Service
It’s not enough to look at AGI during tax season. Advisors should integrate AGI monitoring into regular client reviews:
Quarterly check-ins: Track year-to-date income and adjust strategies.
Collaborating with CPAs: Partnering with tax professionals ensures strategies are compliant and optimized.
Technology tools: Use tax-planning software to model AGI outcomes and run “what-if” scenarios.
This proactive approach transforms tax planning from reactive to strategic. Clients will begin to see you not only as a financial planner but also as a trusted tax strategist.
The Long-Term Benefits of Lowering AGI
While year-end moves deliver immediate tax savings, the long-term benefits are equally significant:
Greater Retirement Security: Higher contributions to tax-deferred accounts build wealth over time.
Improved Credit Eligibility: Lower AGI means more credits and deductions available year after year.
Estate Planning Flexibility: Lowering AGI can free up cash for estate planning vehicles like trusts and gifting strategies.
Client Confidence: When clients see advisors actively protecting their income, trust deepens.
Reducing AGI isn’t just about one year—it’s about building a framework for smarter financial decisions moving forward.
Year-End Planning Made Simple
When clients look at adjusted gross income on 1040, they often see it as just another line on a form. But for financial advisors, it’s an opportunity. By helping clients reduce AGI strategically at year-end, you can lower their tax burden, open doors to deductions and credits, and add measurable value to their financial future.
Let’s talk about how Jalada can help you deliver smarter AGI strategies and strengthen your client relationships. Schedule a consultation today.
Disclaimer: This material is provided for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA for guidance on the specific tax situation.
