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.
Purpose
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
Contact
Anjali Bedi
anjali@abacconsulting.com
(678)-836-7739
