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Tax Planning

What is Tax Planning?
Tax Planning is the art of arranging your affairs in ways that postpone or avoid taxes by employing effective tax planning strategies and taking advantage of all the tax knowledge & tools at your disposal before December to estimate your income taxes & reduce your taxable income & pay less taxes.

The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the most tax-efficient manner possible. Tax planning is an important part of a financial plan, as reducing tax liability and maximizing eligibility to contribute to retirement plans are both crucial for success.
Tax planning encompasses many different considerations, including the timing of income, purchases and other expenditures; the selection of investments and types of retirement plans; and a person's filing status and common deductions.
Understanding the impact taxes will have on your financial well-being is essential, especially for those who are self-employed. Take time to plan for the current year and make adjustments to create positive momentum. There are always new laws and changing provisions in the tax code, which, again illustrate the importance of planning.
Taking control of your taxes and saving tax dollars is what tax planning is all about. Some of the biggest savings associated with tax planning can come from ideas that are very simple, such as saving a percentage of your income to cover estimated taxes or retirement contributions (if you are self-employed), or increasing your 401K/403B contribution while adjusting your W-4 so your paycheck is not affected (for those who are employees).

Strategies to reduce one’s tax liability
•Maximize Retirement Contributions: Deferral of taxation is one of the most common and useful tax strategies for individuals who are currently in a high tax bracket, but if you follow this path anticipate being in a lower tax bracket at some point in the future when withdrawals (distributions) are taken.
•Harvest Investment Losses: You can offset unlimited investment gains, and up to $3,000 of ordinary income each year by selling your investments that have lost value. If your losses exceed your gains and the $3,000 of ordinary income, you can carry them over to be used in future tax years.
•Consider Charitable Gifts: This strategy is only useful if you can itemize your tax deductions (most often due to mortgage interest deductions), and plan on making donations. Appreciated assets are some of the most tax-efficient charitable donations. Donating these assets will allow you to avoid paying capital gains on the appreciation.
•Deduct a Home-Based Office When Used for Your Employer: People who work for companies whose headquarters or branch offices are not located in the same city as the employee, or outside salespeople who often use their home office as a base, can often use these deductions. There are rules that must be followed in these cases, however, and it is wise to consult a professional before diving into the details.

In conclusion, you might be able to see that the tax planning process is not something that can be done in one day at the last minute. Time must be invested throughout the year to identify opportunities for savings as well as effective solutions to accomplish your tax planning goals. ABAC Consulting has professionals to help you in planning your tax.

For any tax advice
Anjali Bedi