Tax planning is the process of analyzing a financial situation or plan from a tax frame of reference and utilize that information to project your estimated tax liability. It includes the implementation of strategies intended to lawfully reduce your tax burden.
The average taxpayer in the United States pays approximately 24% of their income in taxes. That’s a significant portion of your earnings and may be more than necessary. Advanced tax planning can help you review your unique circumstances and provide you ways to reduce your tax burden in line with tax laws and regulations.
In addition to potentially reducing your tax liability and saving you money, many tax strategies take time to analyze, plan, and implement. By waiting until the last minute, your advisor may be limited in the opportunities that may be available to you.
The IRS also has strict laws as it relates to the deadlines for a given tax year. For the most part, all actions taken for a particular tax year must be implemented no later than December 31st of that year. Tax law seems to be constantly changing. By planning in advance, you can stay up to date on the latest tax laws and determine whether any of the changes will impact you from a tax perspective.
WHO CAN BENEFIT FROM TAX PLANNING?
Everyone can benefit from tax planning; however, you should pay particular attention to your tax profile if you have any of the following circumstances:
If you are self-employed, your net income is likely to fluctuate from year to year. Business expenses, independent contractors, employees, insurance, retirement planning, and other elements can add to the complexity of your tax situation.
Changes in your household
Family changes such as a new baby, marriage, divorce, a child going away to college or no longer being a dependent are not only major life events but can also have a significant impact on you bottom line for tax purposes.
If you are holding investments that include significant unrealized gains or losses, a carefully implemented tax strategy can provide insight on the most efficient way to handle and dispose of the assets.
Large changes in income
Big increases or decreases in your income during the tax year will change how you pay taxes for the year. You may need to adjust your withholding or make estimated tax payments in order to account for the difference.
Other life events
Other major life events such as selling your home and retiring can also impact your tax outlook and should not be overlooked. Tax rules and regulations are extensive and seem to be changing constantly. Prudent advanced tax planning can help you to identify opportunities to save money on taxes based on your unique circumstances. If you would like to learn more about the benefits of advanced tax planning or you would like to schedule an appointment, please feel free to contact us for more information.