Tax Planning Strategies- A Quick Guide

Taxpayers are abided by the IRS to pay their taxes every year, burning a hole in the taxpayers’ budgets. This hole can be reasonably reduced by using some of these below mentioned tax planning strategies-
1.Understanding your tax bracket
The first tax planning tip is to understand what federal tax bracket you’re in.
But no matter which bracket you’re in, you probably won’t pay that rate on your entire income because-
(1)You get to subtract tax deductions to determine your taxable income (that’s why your taxable income usually isn’t the same as your salary or total income).
(2)You don’t just multiply your tax bracket by your taxable income. Instead, the government divides your taxable income into chunks and then taxes each chunk at the corresponding rate.
2.Tax deductions and tax credits
Tax deductions and tax credit both reduce your tax bill but in very different ways. Knowing the difference can create some very effective tax strategies that reduce your tax bill.
·Tax deductionsare specific expenses you’ve incurred that you can subtract from your taxable income. They reduce how much of your income is subject to taxes.
·Tax creditsgive you a dollar-for-dollar reduction in your tax bill. A tax credit valued at $1,000, for instance, lowers your tax bill by $1,000.
3.Knowing what tax records to keep
Keeping tax returns and the documents you used to complete them is critical if you’re ever audited <nationaltaxpreparersofamerica.com/us-tax-audits-how-to-deal-with-them/>. Keep records longer in certain cases like the ones listed below, wherein the IRS can audit you even after a period of 3 years-
·Six years:If you underreported your income by more than 25%.
·Seven years:If you wrote off the loss from a “worthless security.”
·Indefinitely:If you committed tax fraud or you didn’t file a tax return.
4.Health Accounts
For Health Savings Accounts (HSAs), the 2020 annual contribution for a family has increased to $7,100 ($3,550 for individual). If you have a flexible spending account, monitor the balance in your account so you do not lose unused funds by the end of the plan year. This tax planning strategy is particularly useful when it comes to business tax planning in businesses that provide Health Accounts.
5.Estate and Inheritance Tax Planning
/Planning/ your inheritance is the key to maximizing the value you pass on to your loved ones from your /estate/. Inheritance of estate or money or valuable is not subject to taxes unless further finances are generated from them. But there are some tax planning strategies for the same like-
* Continue making annual exclusion gifts — up to $15,000 to any individual per year. * If you are under the exemption amounts, focus on income tax basis planning. * Make sure all of your estate planning documents are up to date; non tax-related estate planning remains critical.
Various tax planning software are also available for the above mentioned strategies. But tactical strategies like these require professional help. National Tax Preparers of America and its team of experts promises to maintain accuracy in your taxes and to increase the amount you save every year.