How Tax Planning Saves You MoneyPosted on June 28th, 2019
Considering how complex and time-consuming taxes are, it’s no surprise that many put off thinking about them until April rolls around. However, while it may seem less stressful in the short-term, this last-minute approach means you could be paying out money you might not have to.
Tax planning involves much more than organizing and preparing records – it’s a process for evaluating your tax liability and determining the best approach to help you keep as much of your hard-earned income as possible. Here are the most common ways people and businesses can save money with tax planning.
Earn Tax Credits
Many of the larger financial events in your life can earn you tax credits. These include money you put toward college expenses, saving for retirement, or making eco-friendly purchases such as solar energy and electric cars.
Children are also a huge qualifier for tax credits. Daycare, babysitting, and other childcare costs can all be counted toward a tax credit. There’s also a significant credit to be earned if you adopt a child. Children aren’t the only dependents who qualify, either; if you are caring for a spouse or parent who is incapacitated, or a family member with special needs, tax credits may be available to help you provide for their care.
Utilize Tax Deduction Opportunities
While tax credits give you money toward reducing your liability, a deduction allows you to reduce the adjusted gross income (AGI) you have to report. Tax planning helps you identify what deductions you can expect to qualify for during the year, even some that may not occur to you.
Common deduction opportunities include health care expenses, state and local taxes, interest on a mortgage, job expenses, and charitable donations or gifts.
Increase Withholding or Defer Income
Withholdings take money directly from your paycheck throughout the year. By choosing more withholdings up front, you essentially pay off your tax liability in small installments, rather than owing a larger sum at the end of the year. While this strategy is not for everyone, some can enjoy a more significant refund when it comes time to file.
Make Large Purchases Work to Your Advantage
Planning a large individual or family purchase, like a house, boat, or RV? Is your business looking to acquire new machinery or technology? With proper planning, you can use these large purchases to gain tax credits or deductions, especially if they are put toward a business purpose.
Avoid Adding on to Your Tax Liability
Just as important as finding ways to get money back, it’s essential to know what financial actions will raise your liability. Taking money out of a retirement fund early, for example, turns the withdrawal into taxable income, requiring you to pay more while also losing out on accrued interest.
Haven’t tried tax planning before? It’s never too late to start! Total Business Services offers effective tax planning for individuals and businesses throughout Burke and the surrounding Virginia counties. Contact us for a free consultation today!