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: http://prosperousretirementcoach.com/