Tax planning builds wealth. You may not be familiar with the term, but tax planning is the analysis of an individual’s or business’ financial situation to ensure that all elements work together to allow the payment of the lowest taxes possible. It is generally done towards the end of the year, but its not too late to plan for this year. Proper tax planning can help you retain and make the most of your income to build your assets and wealth.
Concepts to Know Before You Tax Plan
Here are some basic concepts that will help form your financial goals within an effective tax plan. Your CPA can build tax strategies around your needs when these issues are addressed.
- Your tax bracket – The amount your income will be taxed starts with how much income you receive. Our income taxes in the US are progressive, meaning the percentage of taxes due goes up with the income amounts. The seven tax brackets start with 10% for the lowest income bracket and extend to 37% for the highest bracket.
- Tax deductions and credits – Deductions can reduce your amount of income, while credits reduce the amount of tax due. Your CPA will know which best benefit you.
- Standard deduction vs itemizing – Congress determines a flat rate you can deduct from your income based on personal expenses. You may choose that or you may list out your expenses if you think it will reduce your tax liability.
- Tax records – What you are able to claim on your taxes will depend on your documentation. Your CPA will know what you need and how best to avoid a future audit.
Assets are the Goal Before Income
It almost doesn’t matter how much money you make if it just sits in an account. Income that lands you in a higher tax bracket gets taken without benefiting you. Protecting and building wealth starts by keeping as much of your income as possible so you can put it to work for your future wealth. Tax planning is the first way to protect your income; building assets rather than maintaining high taxable income is the key to building future wealth.
Professional Tax Strategies for Wealth-Building
Your financial advisor should be aware of the top three methods to reduce your tax liability while funneling your resources into secure assets.
- Income reduction – The goal is always to reduce your taxable income. This is accomplished through expert tax planning for the upcoming year, coupled with smart preparation and timely tax filing. Remember, not only is the amount of tax lessened with lower income, but the percentage of taxes due decreases for lower tax brackets.
- Tax-exempt investments – Create an investment plan that features tax-exempt investments and low-tax assets with the advice of experienced financial professionals who understand the current tax codes.
- To defer or not to defer – Whether or not you invest in deferred tax programs for your retirement portfolio will depend on your individual needs and tax situation. Your CPA can work with you to design the right retirement plan.
Making a tax plan that benefits your retirement by protecting and building your assets is what professionals at Myrick CPA do every day. Don’t stress over your plans, even if you started later in life to work toward retirement. Today is a good day to make the most out of your income and resources with great tax strategies. Contact us today for the very best approach to building your assets.