Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. … Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
The number one way to reduce taxes is to reduce your income. And the best way to reduce your income is to contribute money to a 401(k) or similar retirement plan at work. Your contribution reduces your wages and lowers your tax bill.
Tax planning strategies are typically employed to help a business achieve their financial and business goals. There are benefits of tax planning for both large and small businesses and planning plays an important role in: Lowering the amount of taxable income.
The objective behind tax planning is insurance of tax efficiency. Tax planning allows all elements of the financial plan to function in sync to deliver maximum tax efficiency. Tax planning is critical for budgetary efficiency. A reduced tax liability and maximized the ability of retirement plans.
The federal tax system is progressive, meaning that generally your tax rate increases as your income increases. … Marginal tax rates determine how taxable income is taxed and those who pay income taxes are divided up into different ranges known as tax brackets. Income in each bracket is then taxed at a specific rate.
Because your adjusted gross income is so important, you may want to begin your tax planning here. What goes into your adjusted gross income? AGI is your income from all sources minus any adjustments to your income. The higher your total income, the higher your adjusted gross income.
As you can guess, the more money you make, the more taxes you will pay. Conversely, the less money you make, the less taxes you will pay. The number one way to reduce taxes is to reduce your income. And the best way to reduce your income is to contribute money to a 401(k) or similar retirement plan at work. Your contribution reduces your wages and lowers your tax bill.
You can also reduce your Adjusted Gross Income through various adjustments to income. Adjustments are deductions, but you don’t have to itemize them on the Schedule A. Instead, you take them on page 1 of your 1040 and they reduce your Adjusted Gross Income.
Adjustments include contributions to a traditional IRA, student loan interest paid, alimony paid, and classroom-related expenses. A full list of adjustments are found on Form 1040, page 1, lines 23 through 34. The best way to boost your adjustments is to contribute to a traditional IRA.
For more information on how we can help you plan your taxes schedule an appointment so we can have a conversation with you and figure out how we can be of service.We will also be publishing our blog to enlighten more on dynamic planning strategies for each taxation year.