If something is draining and stressful, it is doing your taxes. Taxes is one issue that we must deal with on a day-to-day basis. Doing taxes, however, does not have to be a daunting task. When understood, doing taxes, and having a plan to boot can help avoid a lot of liability along the way and ensure all is well with the law. Tax planning refers to legal strategies that can be employed to reduce income, increase deductibles, and earn allowable tax credits.
Income reduction in tax planning
One of the main contributors to paying high taxes is being in the wrong tax bracket and consistently delivering higher than required taxes. It is essential to work with a financial advisor or an accountant, ensure you are within the right tax bracket and get the adjusted Gross income used in calculating the taxes payable. A higher retirement contribution can also help reduce income that is liable to tax and, at the same time, ensure a good quality of life upon retirement.
Increase deductibles
Various allowable deductions are allowed by the taxman. These include donations to charitable organizations, interest paid on the mortgage, and work expenses. When these are itemized and recorded, they can help in reducing the tax liability.
Tax credits
These are incentives that help in minimizing the total amount owed in taxes. Some ways to earn credits are paying for college, child adoption, and increasing withholding tax.
Tax planning is a critical component of any business or individual as it helps keep more money with the earner. This ensures one can lead a better quality of life with more disposable income to work with. Ensure to have a professional who would guide you through the way.
https://www.oecd.org/investment/pfi.htm
Dr. Diana Rangaves, PharmD 