Tax Planning and Why It’s Important
Depending on your current job and income, you may find that you always get money back from the IRS when tax season comes around. Be that as it may, you’re better off not leaving things to chance, an oversight that can find you writing Uncle Sam a large check that includes unpaid taxes and a healthy dose of fees. Your future self, and your financial health, is sure to thank you for looking into tax planning well before the end of the year.
Pay Less in Taxes
Unless you’re an accountant, you likely don’t keep up with changes to tax laws and requirements, which means that you may very well already be in a position to owe more in taxes than you did last year, even if your income didn’t change this year. By keeping in touch with your accountant throughout the year, you can get a heads up regarding new laws that may require you or your employer to withhold more from your check.
If you’re self-employed, make investments, own a business or have children, it’s especially important that you pay close attention to tax planning; not only so you can reduce how much you pay in taxes, but also for profit maximization. Make your life easier and your bank account happier by taking steps to always ensure that you’re on the IRS’s good side.
Have an Easier Time Meeting Your Financial Goals
You likely have plans for your money that go beyond paying bills, such as saving up for retirement, buying a house, sending your kids or college and establishing an emergency fund. You’re sure to have an easier time meeting those goals when you have more money coming in than you do going out. Planning for your taxes lets you know how much money you can expect to pay or receive from the government, information that better allows you to map out and achieve your financial goals and adjust them accordingly.
Make the Most of Planning Strategies
Just as it takes time to meet your financial goals, the same is true of strategies involved in planning your taxes. By getting a head start on those strategies, you give yourself the time necessary to determine how effective those methods are and maximize their overall benefits. This tip is especially essential for those who participate in a 401(k) program or any other type of retirement plan. Not only does getting a head start let you see how a specific plan is working, it also allows you to fully realize the plan’s benefits. You don’t want to be under the impression that the perfect tax strategy isn’t so ideal just because you didn’t give the seed enough time to sprout and flourish.
Avoid Becoming a Cautionary Tale
By planning your taxes, you can learn from the mistakes of others rather than becoming a horror story. Waiting too late or failing to plan at all can cost you serious money, money that belongs in your bank account rather than with the IRS. Cautionary tales abound regarding people who are engaged and sell their current home while still technically single rather than waiting until after the wedding when they could have taken advantage of a joint-filing exclusion. Get into the habit of touching bases with your accountant before making any major changes to your life, no matter how far removed from taxes those changes may seem to be. It’s always best to err on the side of utmost caution when money is involved. Otherwise, you may find yourself sharing your story with others in the hope that they won’t make your avoidable financial blunder.
Make Tax Law Changes Work for You
Just as changing tax laws can result in the need to change how much is withheld from your check or how much you make in estimated quarterly tax payments, those shifting tax laws can also work in your favor. That being said, you have a better chance of making the most of changes when you actually know about them. Because the IRS doesn’t send up a flare regarding shifts to tax laws that will benefit you, planning for your taxes throughout the year lets you know about upcoming laws that can boost your financial health as well as expiring laws that you need to take advantage of before they no longer apply. Just as taxpayers sometimes wait until the last minute to file, Congress sometimes waits until the last minute when it comes to enforcing changes made to tax laws. Keeping your finger on the pulse of those laws puts you in a better position to pounce on opportunity the moment it presents itself.
Realize That Your Healthcare Is Likely Linked to Your Taxes and Income
No matter how you may feel about the current state of health insurance in the U.S., there’s no denying that it’s likely impacted your tax liability. Those who buy insurance through the health exchange have premiums that are linked to their current income, which means that receiving a raise can hurt them financially if they don’t plan accordingly. By sitting down and talking with an accountant, you can figure out how to keep from being hit with sticker shock upon learning that you owe hundreds or even thousands of dollars to the IRS.