Ben Franklin said, “A penny saved is a penny earned.” Translated: use smart tax planning to help build wealth. In even more straightforward terms, the more you control and limit the amount of taxes you pay, the more resources you’ll have in the future for your life and your family’s. Keeping what you earn to the best of your ability will help you save income, grow investments and ultimately build wealth.
Smart Tax Planning for Life
We’ve talked about creating a yearly strategic tax plan. As soon as you file your tax return, that’s the time to sit down and create a tax plan for the following year. Planning for yearly tax concerns will help create a robust financial plan. Since decisions you make concerning purchases, their timing, the methods used to purchase, and all other aspects of financial decisions for the year can be significantly affected by tax implications.
Smart tax planning for your life is also critical. When you consider tax plans for a given year, always consider potential actions and goals for how they might affect your wealth five, ten, or more years in the future. Ultimately, the purpose of yearly strategic tax plans is to preserve and build wealth down the road.
Tax Tips for Wealth Building
Tax planning is the first step in raising your net worth. Here are some excellent first steps in making sure your tax filing leads toward building wealth rather than throwing money away.
- Goals – Set goals and plan to achieve them. Start monthly, then yearly, and then longer-term, for 5, 10, and 20 years or however long until retirement.
- Tax credits – Be diligent in investigating any potential tax credits. Many people pay too much on taxes by not taking advantage of tax credits.
- Documentation – Make sure your deductions and other documentation are always in good order.
- Organize all tax information – Keep all potential tax documentation in one place.
- Donations – It’s easy to collect cash contribution documents; however, it takes some effort to save stubs, receipts, and communications regarding items and other non-cash donations you give. Assign a dollar value to everything you donate.
- Medical expense records – Keep receipts and document all out-of-pocket expenses and mileage for doctor visits.
- Travel expenses – Save all mileage documentation (2020 was $0.575/mile) and other expenses.
- Other Deductions –Keep track of business expenses, including furnishings and equipment. Consider all business deductions related to having a home office. Understand and document all Schedule 1 or Schedule A deductions.
- Tax-advantaged accounts & IRAs – As soon as you or your spouse qualify, start an IRA and record contributions. Consider Roth accounts. Contribute to 401K, Health Savings Accounts, and others.
- Student loan and other debt interest – You can deduct $2,500 annually from interest paid on student loans if your income qualifies. Save thousands of dollars on overall interest payments by paying off all debt, such as loans and credit cards, even your mortgage, as soon as possible. Don’t allow yourself to pay taxes on the income you don’t get to keep in the long run.
Since smart tax planning is essential to the beginning of wealth building, one of the best things you can do for your financial future is to hire experts in tax accounting and preparation. Myrick CPA is dedicated to serving our clients by ensuring clients are in control of keeping their wealth intact rather than overpaying taxes. Get in touch with us today!