This post was written by Jonny Pean
If you have taxable income, then paying taxes in a timely manner is a responsibility which you can’t do away with. Paying tax sometimes becomes a burden for us, especially when our income slumps or expenses rise. However, there are ways in which you can ease your tax burden and save money on your tax payments. You can also talk to an advisor if you wish. Some of the well-established methods and techniques of tax planning and saving on your tax payments have been explained below.
Tax planning is all about making the most of the means and know-how related to tax that you have prior to December 31 of every year with the intention of:
- Assessing your income taxes
- Getting eligible for the appropriate credits
- Deducing the expenditures
- Lowering your taxable earnings and paying a lower amount of taxes
While doing tax planning, you need to determine which tax bracket you belong to. There are two income tax brackets and they are Federal income tax bracket and state income tax bracket.
The Federal government has the authority to impose tax on your income and your state government has it, too. You will find the federal tax rates on the IRS website. However, there is a state tax rate imposed on your income besides the federal tax rate. The most interesting part of this tax is that it differs from one state to another and you can use your state tax calculator to determine your rate.
Different types of tax planning
There are different varieties of tax planning that you can adopt and some of them have been discussed below:
Tax planning from January 1 – April 15 of every year:
In this type of planning, you need to ensure that you have gathered all paycheck stubs, W2’s, as well as other tax records with the aim of filling out and submitting the tax returns. As soon as the Internal Revenue Service starts receiving tax returns in the middle of January, you can commence to submit your return. However, you have time until the 15th of April for submitting your return punctually or else, you will be subjected to fine for delayed submission. You can think about e-filing of return in order to make the procedure prompter.
Major Tax Preparation and Planning Checklist:
If you have all your tax records in hand, you can also go for online filing, popularly known as e-filing. For doing this, you need to get a printout of a tax planning and preparation checklist from eFile.com. Subsequently, you will find out how simple it becomes to keep tabs on tax credits, the W2’s, and other tax records that you have to organize and submit with your state and Federal tax returns.
1. Round the year tax planning
Round the year tax planning takes place from the first day of the year until the last day of the year. You can obtain your upcoming tax refund via a salary check withholding modification. You should not forget to monitor all your tax documents (acknowledgments, W2’s, annulled checks, and so on) in order that you are prepared to submit tax audit or tax return for the coming year. By adjusting your salary check withholding at this time, you can receive your tax refund sooner.
2. Tax planning from October 15 to December 31 of every year:
Given below is a list of things that you need to get ready for getting tax breaks on the tax returns for the present year:
A. Tax Deduction Planning For The Year End:
Deductions help you lower your taxable income and raise your tax refund. The list of deductions might encompass different life groups. Therefore, you are able to save money on all your expenditures or disbursements.
B. Tax Planning Guide For The Year End
You can save money on your tax payments when you claim for tax breaks on your return by the last day of the year (December 31).
C. Tax Credit Planning For The Year End
Credits lower your tax burden. You can make the most of credits in various life categories and save many dollars on your returns.
4. Tax planning from April 15 to October 15 of every year:
When you have electronically filed or submitted a federal tax return extension, just ensure you bear all the records and papers you require to fill out and submit your return by October 15. It is not compulsory for anyone to prepare for a tax audit.
If you feel, you can always use an income tax calculator to find out how much you can save on your tax payments, taking into consideration your salary and other sources of income.
Jonny Pean aka Avik is a passionate finance blogger, presently based in Florida. As a well-informed finance blogger, Jonny loves to share his views on finance management, debt handling and other financial tips in his blogs. You can connect via Twitter / Facebook.
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