Tax Planning Tips |
|||
|
We know it doesn't sound like fun. But trust us. A little advance planning will almost always help you reduce the taxes you owe. By the time you come to office to prepare your tax, it's already too late for you to take some advantage if you didn't take action before hand.
That's why we are here all year around to offer free tax planning strategy and tips to you if you prepare you tax with us. We know this is the only way to ensure that you will get your maximum tax deduction and to minimize the amount of taxes paid. |
||
|
We believe in tax education, we will give you lots of free tax advise during tax preparation on what you should do throughout the year afterwards. But anything like any life event change happened during the year, and you are worried about tax consequence, let us know, we will give you a free tax consultation. There are three basic ways to reduce your taxes, and each basic method might have several variations. You can reduce your income, increase your deductions, and take advantage of tax credits. Reducing IncomeAdjusted Gross Income (AGI) is a key element in determining your taxes. Lots of other things depend on your AGI (or modifications to your AGI)-- such as your tax rate and various tax credits. AGI even impacts your financial life outside of taxes: banks, mortgage lenders, and college financial aid programs all routinely ask for your adjusted gross income. This is a key measure of your finances.Contribute to a retirement planAGI is your income from all sources minus any adjustments to your income. 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. The best way to boost your adjustments is to contribute to a traditional IRA. As you can see, two of the best ways to reduce your taxes is to save for retirement, either through a 401(k) at work or through a traditional IRA plan. Contributions to these retirement plans will lower your taxable income, and lower your taxes. Manipulate your incomeThe most basic form of yearend planning involves pushing tax bills into the future by deferring income into the next year and accelerating deductions into the current year. One example would be to postpone an IRA withdrawal, another would be to prepay your Jan. 1 home mortgage interest in December.Of course you must aware that shifting income would reduce your current AGI (good) but increase the next year's figure (bad). So you would need take whole picture of this and next year's total income into account, and implement only those ideas that will put you ahead over the two-year period. Increase Your Tax DeductionsEssential end of the year tax planning requires determining whether you will take the standard deduction or whether you will itemize your deductions. Consider "bunching" deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one year or whether the adjusted gross income limits for medical (7.5 percent) or miscellaneous itemized deductions (2 percent) may be more easily met.Even if you know you will itemize deductions, accelerating or deferring them is often a question of determining your probable tax bracket for year end and the next year to maximize their after tax value. Sometimes planning is as simple as paying your state estimated tax or real estate taxes in one year or the other; at other times, it's a question of making certain you gather the right proof and follow the proper steps in time to be entitled to a deduction in one year or the other. Again, this office can help. Take Advantage of Tax CreditsTax credits reduce your tax. There are tax credits for college expenses, for saving for retirement, and for adopting children.The best tax credits are for adoption and college expenses. Not everyone is in a position to adopt a child, but everyone could take some college classes. There are two education related tax credits. The Hope Credit is for students in their first two years of college. The Lifetime Learning Credit is for anyone taking college classes. The classes do not have to be related to your career. You may also want to avoid additional taxes. If at all possible, avoid early withdrawals from an IRA or 401(k) retirement plan. The amount you withdraw will become part of your taxable income, and on top of that there will be additional taxes to pay on the early withdrawal. One of the best, and most abused, tax credit is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. And that means the EIC often results in a tax refund even if the total tax has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount. |
|||
