Year- end tax planning is one of the most important elements in preparing for one’s financial forecast. It is a technique that helps taxpayers manage their taxes by forecasting income and expenses to minimize any potential tax liabilities. People who ignore this concept are often surprised when they discover the amount of taxes they owe to the IRS. In fact, the more money one earns, the more taxes will be deducted from income. Alternately, the less money one makes, the less tax will be deducted from income. It’s no surprise that everyone aims at paying fewer taxes especially when they earn more. However, not everyone takes advantage of the various tax options that are available to them. To that end, it is to the taxpayer’s benefit to work with a tax expert to uncover the many tax breaks that are available and apply them to their advantage.
At Protax, our goal is to focus on ways to help reduce your taxes while maximizing your refunds. We will help reduce your tax liabilities by ensuring that you take full advantage of the various tax loopholes and credits within the tax law. Based on your financial situation, we’ll work with you to determine which strategy best fits your needs. Among some of the strategies are:
- Control your AGI
- Estimate Your Tax bracket
- Income deferral
- Income acceleration
- Taking advantage of various tax credits.
These methods, when used, can guarantee the best possible outcome for taxpayers seeking to reduce their taxable income.
Control Your AGI
One of the greatest concepts that helps control your taxes is your Adjusted Gross Income (AGI). It is the number that determines your tax brackets—the amount of taxes you pay and whether or not you are eligible to claim certain tax credits. The AGI is often used as the basis for tax planning, as it represents all sources of income minus any adjustments to income. It is used as a threshold figure, and the basis for figuring tax rates and income tax liabilities prior to the application of any eligible deductions or credits. Many financial institutions use this number to measure a person’s financial eligibility for mortgages, loans, financial aid etc. The higher the income, the higher is the AGI, and consequently, the higher is the tax liability. Proper tax planning requires a strong focus to help decrease AGI, which will ultimately lower your taxes.
Estimate Next Year’s Tax bracket
Another method that is essential in tax planning is the estimation of the tax bracket before the year changes. Knowing your tax bracket ahead of time helps you better prepare how to manage with a higher or lower taxable income. A higher taxable income could stem from a larger bonus, overtime, or an additional job. Although for most of us, being in a higher tax bracket often is not a bad circumstance to be in, but it also means a higher taxable income. Without a well defined strategy, one could end up paying more money in taxes than necessary.
- Income deferral and Income Acceleration
- If your income fluctuates, we can help you shift it from one year to another in order to have it fall where it will be taxed at the lower rate. We can also help shift your deductions from one year to another where the tax benefit will be greater.
- We can also work with your tax liability by deferring it through certain investment choices and through pension plan contributions.