Tax Defense Expert states that tax planning is not tax avoidance or tax evasion; tax planning does not involve any illegal activity. It is a way to reduce your taxes by using various legal methods such as tax deductions, credits, and investments.
Reduction in Income
Tax Defense Experts believe adjustments in income can be made to reduce taxes. Your Adjusted Gross Income (AGI) is income from all sources minus the adjustments made to it. The more adjustments you can make to your income, the less you will be taxed on.
We suggest the best method to reduce your income is to utilize a retirement plan, traditional IRA, student loan, alimony paid and many other similar deductions. Tax Defense Mangement informs taxpayers that food coupons, medical expenses, rent, transport allowance, and leave travel allowance can also form a part of your salary structure that is exempt from taxes.
Increase in Deductions
You must put forward some of the most popular itemized deductions that can reduce your AGI and therefore what you pay in taxes. Expenses for health care, personal property taxes, such as car registration fee, payments to charitable institutions, interest on mortgage, job-related expenses, investment-related expenses, and tax preparation fees, are all itemized deductions. Tax Defense Expert explains that the three biggest tax deductions out of these are state taxes, mortgage interest, and monetary contributions to charitable institutions.
Tax Defense Expert believes tax planning needs to be completed throughout the year, not only at the time of filing taxes. It is better to keep a spreadsheet with a record of the date on which you carried out these expenses. Tax Defense Expert says this will help you to compare your itemized expenses with your standard deduction.
You must focuse on tax credits to reduce how much is paid in income taxes. Popular tax credits are:
Earned Income Tax Credit (EITC) – When you worked last year, but did not earn a lot of money.
Child and Dependent Care Credit – If you paid for the care of a qualified nanny so that you could work or look for work. You and your spouse need to be married.
Adoption Credit and Adoption Assistance Programs – You can claim a refundable tax credit for expenses paid to adopt a child. For adoptions before the year 2010, the adoption credit is not refundable.
Retirement Savings Contributions Credit – Any eligible contributions to retirement plans or the IRA will receive a tax credit.
Excess Social Security and RRTA Tax Withheld – Employers other than in some federal, state and local governments, must withhold social security tax from your wages.
First Time Homebuyer Credit – If you purchased a house, you can receive a tax credit if you qualify.
Tax Defense Manager suggests taxpayers plan their taxes regularly to receive the maximum tax benefit. It is vital to invest the saved amount in fixed deposits, mutual funds, and equities. You cannot stress enough how important tax planning is to taxpayers, and how utilizing its benefits can save you money in the long-term.