Tax planning means finding ways to minimize the taxes you have to pay each year. Tax planning is not the same as tax evasion. Tax evasion means cheating and lying to minimize your taxes. Tax evasion is illegal and costs more in the long run. You can do a quick search for tax evasion cases in the United States and you will see how serious this crime is. In the mean time, take a look at these celebrity tax evasion cases.
Tax planning is not just for rich people. You can benefit from tax planning even with modest income.
How can tax planning help you?
As a business owner or employed individual you earn income. If you plan right you can minimize the taxes you pay on the income you earn. By pre-planning how you are going to be taxed on every dollar, you benefit with more tax savings at the end of the year.
Tax planning should be started at the beginning of each year before any dollar is received. Just by changing the way you receive money, you could cut your tax bill by significant amounts.
Some common areas you can save on taxes
Here are some areas to look at when you do tax planning:
- Timing your home sale to maximize your tax free income
- Receiving part of your income in retirement savings
- Participating in a cafeteria plan where you can pay for expenses like daycare using pre-taxed dollars
- Transferring income to your children
- Strategically planning your gift giving to minimize any gift tax implications
- Lowering your capital gains tax rate
- Planning your deductions in your business
- Maximizing your itemized deduction
- Planning when you receive income so you minimize the overall tax paid
- Paying for health care with pre-taxed dollars
- Investing in your children’s college education with pretax dollars
- Choosing a business entity that minimizes your taxes
These are just some of the many areas where you can save on taxes simply by planning.
When to consult a professional for tax planning advice
If you earn moderate income and have no business, you can do your tax planning yourself. You only need to consult your CPA before you make any purchases or sale that have tax consequences. An example of this will be selling your home.
However, if you own a business you should have a CPA you consult with on a regular basis as the laws concerning businesses are more complex than those for W-2 earners with moderate income. If you do not have a CPA, I will be glad to help you minimize your taxes.