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Tax Planning

Tax Planning—What It Is & Why It’s Important

The goal of tax planning is to legally maximize tax deductions and credits and minimize the amount you have to pay to the IRS. The Internal Revenue Code specifies several ways individuals can save money on their tax bill. For example, they encourage retirement savings by allowing you to grow your nest egg with pre-tax dollars. Similarly, you may qualify for certain deductions and credits, such as child tax credits, education credits, or deductions for small business income.

Tax planning doesn’t involve a major change in your finances. Instead, we take better advantage of the financial situation you find yourself in. By helping you better understand your finances, tax situation, and opportunities to maximize deductions, proper tax planning can save you a lot of money.

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Why Tax Planning Is Important

Taxes are inevitable, and you have to pay them—but the amount you have to pay in April is not set in stone. With proper tax planning, you can save more toward retirement and reduce your tax bill at the same time. The only caveat is that you can’t wait until April to make these decisions for the previous year. The sooner you adjust your finances, the more you’ll benefit come tax time.

You can be intentional about taxable income now and in retirement. While you’re earning more money and still benefit from deductions for your dependents, you can set money aside for retirement that is not being taxed now. This helps you maximize your contributions and allows your investments to grow exponentially.

<h2><span style="font-weight: 400;" data-mce-style="font-weight: 400;">How Your Financial Plan Affects Your Taxes</span></h2>

How Your Financial Plan Affects Your Taxes

Incidentally, the assets you invest in now also affect your tax bill. For example, if you have stocks outside of your retirement accounts, you will pay income tax on the dividends you receive. Then there is capital gains tax if you sell them after they’ve increased in value. 

Investing in stocks in your tax-deferred retirement accounts means deferred income for you in return for a tax break. The downside is that you won’t have access to the money until you reach a certain age, but it still allows your wealth to grow. You’ll also want to pay attention to the type of income you receive. For example, income from a business may qualify for additional deductions, whereas earned income is taxed at the regular rate. Our financial planners can explain exactly how your finances are affecting your taxes and make detailed suggestions on how to reduce your obligations to the IRS.

FAQs about Tax Planning

You probably have a lot of questions about tax planning. For specific information regarding your financial situation, we recommend you give us a call. Here, we give some general advice to help you get started with tax planning.

When Is the Best Time to Start Tax Planning?

Now. It’s never too early in the year to plan for next year’s taxes. The IRS only cares about your income and expenses when it’s April, but every contribution to your retirement account throughout the year counts toward reducing your tax bill. 

Should I Hire a Professional for My Tax Planning?

You can most likely benefit from hiring an expert for your tax planning. Unless you work in the financial industry, you’re probably not familiar with the nuances of the tax code. A good financial advisor can save you a lot of money with proper tax planning strategies. 

How Can I Invest Money Without Paying More in Taxes?

It’s a good idea to invest your money to build wealth. There are several strategies that allow you to do so without paying taxes right away. For example, individual retirement accounts can be set up as tax-deferred accounts, saving you money on your tax return. For specific advice on how to invest your money without increasing your tax bill, call our team today.

Let Us Help You Reduce Your Tax Bill

The amount of money you keep in your pocket is just as important as the money you earn. Chances are, you’re currently missing out on some tax savings, especially if you’re not already maximizing your retirement investments. AWN Tax Services is committed to optimizing your financial health. We offer tax planning and tax preparation services year-round. Contact us today to see how we can help you save money by investing in yourself.