Prosperous Retirement : Tax Planning


You have a wide range of choice when it comes to preparing your tax returns. Tax returns can be prepared using forms downloaded directly from the IRS, using tax preparation software from independent software publishers, or by hiring a professional tax filing professional. It is important to check the credentials and actual experience of the professional before hiring him or her for filing your tax returns. You can also draft out your tax return on paper forms or using software before seeking out professional help.


It is indeed irksome to pay huge taxes out of your income. However, with a proper tax planning, you can arrange your financial affairs and minimise your taxes. There are three basic ways to reduce your taxes, and each method can have several variations:


Reducing your taxable income - Adjusted Gross Income or AGI is a key element that determines the taxes you pay. Apart from AGI, it is the tax rate and the tax credits that impact the amount of money you pay as tax. However, AGI also 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 and credit worthiness. Adjusted Gross Income is your income from all sources minus any adjustments to your income. Obviously, all of us wish to earn maximum while we can but more the income, more are the taxes. So the best way to reduce taxes is to reduce the taxable income and this is possible by contributing money to a retirement plan or other saving scheme. Such contribution reduces your wages, and lowers your tax bill. Choosing and investing in a good retirement scheme must be a part of your tax planning.


Increasing your tax deductions - Almost everyone can take a standard deduction on income, and some people can also itemise their deductions. Itemised deductions comprise expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses. One key tax planning strategy is to keep track of your itemised expenses throughout the year with the help of a spreadsheet or personal finance program. You may then quickly compare your itemised expenses with your standard deduction and can take the higher of your standard deduction or your itemised deduction. The three biggest deductions to save tax are mortgage interest, state taxes, and gifts to charity. 

Taking advantage of tax credits - Once you are through tax planning to reduce our taxable income and increase tax deductions, you can focus your attention on various tax credits. Tax credits further reduce the tax. There are tax credits for college expenses, for saving for retirement, and also for adopting children. Not everyone is in a position to adopt a child, but everyone may take some college classes. You can also avoid some additional taxes by avoiding early withdrawals from retirement plans. The entire amount that you withdraw becomes part of taxable income, and over and above this there will be additional taxes to pay on the early withdrawal.


Tax planning just involves knowing all your options and using them to your financial benefits. A professional tax planning adviser can also be consulted for details on different aspects of tax savings.


To plan your taxes well and eliminate the burdens for retirement, contact a friendly financial planner at: