Strategies for Effective Tax Planning
A Retirement Tool
Defer taxes owed on money you put into your retirement account. You will owe tax on the money later, when it is withdrawn from your retirement account. In the meantime, the money will reside in the retirement account, as well as earnings that the money accrues during the holding period, with no tax owed until the time that the money is withdrawn.
Adopt a Long-Term Strategy
Consider your entire financial picture. Look out several years and determine, as much as you can, how your income and deductions will be changing over the period. In most cases, effective tax planning will be to keep your taxable income from spiking upwards, and maintain it as level as possible. If it seems possible that your taxable income may spike downwards in the future, consider how to use the downward turn to your tax advantage.
Think Over Every Aspect of Your Financial Situation
Before you make a major financial decision, for instance, buying or selling your business, think about the tax ramifications of the transaction. You don’t want to give away a large chunk of your financial reward due to poor tax awareness.
To avoid unintentionally losing out on substantial tax savings, consult with us before you make any significant changes in your financial situation!
Go Itemized or Go Standard?
You should be aware of the different deductions that are allowed using itemized deductions and keep track of them annually. Regardless of how your past tax returns were filed, you need to consider this choice each year. And since the standard deduction changes each year, you will need to know how much that deduction is scheduled to be for the tax year under consideration. You can then plan on paying for tax deductible costs this year or, if that won’t be enough to itemize, delaying the payment until the next tax year in hope that you will have enough itemized deductions to be useful in the next year.
Also, remember to consider the state tax situation: itemize or standard for the state may be a different calculation than the calculation for the federal income tax return.