Last updated on April 8th, 2020 at 04:04 pm
Intelligent tax planning may not save you every penny, but it can surely save you a lot of taxes. Discover the best tax planning strategies for beginners here.
Americans collectively pay over five trillion in taxes each year.
The point is, there’s a lot of people who pay taxes each year to the government. It depends on how much you make each year.
So, how do you navigate taxes? With tax planning strategies of course.
If you’re a beginner, tax planning is the best way to prepare for the upcoming tax season.
Check out six tax planning strategies that every beginner should know.
Understand Your Tax Bracket
Your tax bracket is dependent on how much you make.
Typically, the more you make, the more you owe in taxes. This is why tax planning strategies are critical to understanding what bracket you are in each year.
For instance, you pay no taxes on the first $9,000 you make. But you pay 12 percent if you make between $9,001 and $39,000. You get taxed an even higher rate of 22 percent on income $39,000 and $84,000.
Overall, there are seven different types of tax brackets based on income. But you won’t pay the entire rate in your bracket because it’s based on deductions and credits.
Know the Difference Between Tax Deductions and Tax Credits
Deductions and credits are a good thing. Deductions are what you take away from being taxed. It means you are taxed less on your income.
Credits are also a good thing because they lower your tax bill.
This is why a tax consultant is always a good idea to figure out deductions and credits.
Be Aware of Tax Deductions
This is why it’s important to strategically plan for deductions, so you know what you don’t have to pay.
For instance, there are adoption credits, child tax credit, earned income tax credit, and many other kinds of credits.
Keep Track of Your Tax Records
Every beginner needs to keep track of their tax records because the IRS can look at your income records from six to seven years ago. They can even look at it as far back as they want if you committed tax fraud.
Open a 401K
Another tax planning strategy is opening a 401k if your employer offers it. Opening one up can give you a tax break.
The IRS does not tax money that’s put away for retirement.
Put Away for IRA
An IRA is an individual retirement plan. This may be tax-deductible. It depends on if your spouse works and has a retirement plan and how much you earn from your work.
The benefit of an IRA is that your withdrawals from an IRA are not taxed. This is why you need to open and start saving with an IRA immediately.
Plan for Tax Season Like a Pro
Planning your taxes shouldn’t be stressful. Running away is never the solution.
Using these strategies is part of the solution. The rest involves a commitment to these strategies. Tax planning strategies are designed to help you pay less and get more money back.
For more information on tax strategies, visit our website or contact us.