Reduce your taxes through proper planning
Planning ahead of time is critical for ensuring that you pay the lowest tax rate feasible. Our knowledgeable tax professionals at Damiens Tax Law will work with you to evaluate your financial objectives and design the most effective approach for you, because we are skilled in tax planning.
We understand the tax code and how to use it to minimize your federal income tax liabilities. Through proper planning, we can help you take advantage of opportunities and deductions that you may not have been aware of. In addition, we will keep abreast of any changes in the tax code that could impact your taxes, so that we can adjust your strategy as necessary.
When should I start tax planning?
You can start by taking our tax planning quiz HERE.
Ideally, you should start looking for tax breaks as soon as possible. However, it is never too late to start. Even if you are already facing a tax bill, there may be opportunities to reduce your liability through retroactive planning. A tax professional can help you assess your situation and determine the best course of action.
Tax planning strategies are an important tool for individuals and businesses alike. By taking advantage of deductions and credits, you can lower your taxable income and reduce the amount of taxes you owe. In addition, tax breaks can improve your cash flow by deferring taxes or spreading them out over time. Consult a tax professional to learn more about how tax planning can benefit you.
What are the steps?
The first step is understanding the types of taxes you may owe. The most common types of taxes include:
- Income taxes: You will owe income taxes on any money you earn from wages, investments, or other sources. The amount you owe will depend on your income level and filing status.
- Payroll taxes: If you are an employee, your employer will withhold payroll taxes from your paycheck. These taxes go towards Social Security and Medicare.
- Capital gains taxes: If you sell investments such as stocks or real estate for a profit, you may owe capital gains taxes. Through proper planning you may be able to offset capital gains.
- Property taxes: You may owe property taxes if you own a home or other property.
- Estate taxes: If you inherit money or property from someone who has died, that inheritance may be subject estate taxes. This is when proper estate tax planning is important.
What is the main goal of tax planning?
The most significant goal of income tax planning is to minimize federal taxes on individuals and businesses. The simplest method is: To reduce income by income deferrability, creating beneficial and legal deductions, and strategically using business entities to minimize what is subject to tax.
What are the benefits of tax planning?
The advantages of planning are numerous, but the primary ones include:
- Reduced taxes: The most obvious benefit of planning is that it can help you save money on your taxes. By taking advantage of deductions and credits, you can lower your taxable income and reduce the amount of taxes you owe.
- Improved cash flow: planning strategies can also help improve your cash flow by deferring taxes or spreading them out over time. This can give you more flexibility in how you use your money and can make it easier to meet your financial goals.
- Peace of mind: planning can provide peace of mind by helping you avoid surprises at tax time. By staying on top of your taxes and planning ahead, you can be confident that you are doing everything you can to minimize your tax liability.
What is the difference between tax planning and tax evasion?
Tax planning is the legal practice of taking advantage of tax breaks in the tax code to reduce your tax bill. Tax evasion, on the other hand, is the illegal practice of deliberately underreporting your income or claiming false deductions in order to reduce your taxes. Both tax planning and tax evasion can result in penalties from the IRS, so it is important to consult a tax professional before taking any action.
Tax planning strategies start with understanding your tax bracket
You cannot plan a future without knowing what your current situation is. The most important planning advice should be to determine which federal tax bracket your tax situation and modified adjusted gross income fall into since U.S. taxes are progressive. People in higher taxable status have higher tax rates while people in lower taxable brackets also get lower taxes.
The difference between a tax deduction and a tax credit
Tax credits and deductions might be an ideal place to start the learning process. Tax deductions reduce the overall taxable income for an individual. Whereas, tax credits are a dollar-for-dollar reduction of the actual tax liability. In other words, if you owe $1,000 in taxes and you have a $100 tax credit, your new tax liability is only $900. Alternatively, let’s say you’re in a 25% bracket and you have a $100 tax deduction, this would only reduce your tax due by $25 ($100 x 25%).
For an individual, there are two types of deductions: the standard deduction and itemized deductions. The standard deduction is a set amount that you can deduct from your income if you do not itemize your deductions. Itemized deductions are specific expenses that you can deduct from your income if you itemize your taxes. Some common itemized deductions include medical expenses, charitable donations, and home mortgage interest.
There are also two types of tax credits: refundable and non-refundable tax credits. Refundable tax credits can be refunded to you even if you do not owe any taxes. Non-refundable tax credits can only reduce your taxes owed, but they cannot result in a refund.
Both will help lower your taxes. Knowing this difference can help you find a way to save a lot of money on your tax bills.
Small business tax burden strategies
Tax planning strategies may never come to the forefront of business owners’ lists. Tax planning is a key factor in determining the success of any small business. Below are some things businesses have to consider if preparing to meet their tax obligations, whether it is internal tax planning or outsourcing tax planning.
- Review expenses: This is one of the most basic planning strategies because it can help business owners know what they can and cannot deduct come tax time. Businesses should keep track of all expenses, including office supplies, inventory, travel, employee salaries and benefits, marketing, and other costs associated with running the business.
- Consider hiring a professional: Small business owners have a lot on their plate, and the planning can be complex. Hiring a professional to help with tax planning and bookkeeping can take a load off your shoulders and ensure that your taxes are done correctly.
- Stay up to date on changes in the tax code: The tax code is always changing, so it’s important to stay up to date on the latest changes. This way, you can take advantage of any new tax breaks that might be available to small businesses.
- Maximize tax deductions: There are many deductions available to small businesses, so it’s important to take advantage of as many as possible. Common deductions include those for office supplies, travel, employee salaries and benefits, and marketing expenses. But there are many more that may require more complex strategies.
- Plan for estimated taxes: Many small businesses are required to pay estimated taxes throughout the year. This means setting aside money each month to make sure you have enough when it comes time to file your taxes.
- Keep good tax records: Good recordkeeping is essential for any business, but it’s especially important come tax time. Make sure you keep track of all receipts and invoices so you can take advantage of all the deductions you’re entitled to.
Working with you to reduce what you owe to the IRS
The aim of planning is to reduce your tax bill in the long run. Our attorney will develop unique strategies to help you achieve this goal while keeping your finances in mind.
Here are some ways in which planning can reduce your taxes:
- Minimize taxes through a business: If you have a business, there are many tax advantages that can reduce your overall obligation, which we can help you explore. Some particularly important tax deductions for self-employed individuals are health insurance premiums. However, there are certain special requirements that must be met.
- Reduce your tax bill through retirement savings: Saving through a retirement plan is one of the most popular and effective ways to reduce taxes. If you contribute to a traditional IRA, you can lower your gross income by the amount you contribute.
- Tax gain-loss harvesting: This form of tax planning is also related to investments. You can use your portfolio’s losses to offset your overall capital gains.
- Claim tax credits: There are a variety of IRS tax credits that will allow you to reduce your taxes, including the Earned Income Tax Credit.
Talk to our experienced tax attorneys during a free initial consultation today!
At Damiens Law Firm, PLLC in Mississippi, we will work with you to minimize your taxes through a variety of methods. You should not have to pay more taxes than you have to. Let our attorney analyze your finances and create the most effective plan for you. The Jackson tax planning attorney at our law firm has been helping clients since 2011 and would be honored to assist you.