You've probably heard the old adage about death and taxes: they affect everyone. In the case of taxes, at least in the United States of America, you are required to pay your fair share as set out in the IRS tax code, but not a penny more. One of the best ways to inoculate yourself from paying too much is to conduct proper tax planning.
The IRS Tax Code: A Real Behemoth
The federal tax code is a monstrously large and ever-changing document that stipulates the rules and regulations regarding the government's official and legal confiscation of your money in the form of taxes. According to some sources, no one really knows how large it is, although most counts enumerate it at over 6,500 pages.
Being aware of those portions of the tax code that will enable you to legally lower your tax burden makes you truly tax-savvy. It pays to keep up with those portions that directly affect your personal finances, or if you are a business person, your company, or your firm.
Tax Planning: Your Best Legal Defense Against Paying Too Much In Taxes
Why is tax planning Important? For one thing, it is absolutely essential in order to take advantage of the many ways to minimize your tax liability. Many of the legal deductions or credits that you can take require detailed and accurate record keeping. Unfortunately, some people try to "manufacture" the records they need at tax time. This is not prudent. Instead, planning for and keeping good records is something to be done throughout the year, not just in April.
The last thing you want is an IRS tax audit. Although a very small percentage of tax returns are actually audited, if you are one of the unlucky individuals to incur one, it can be a big headache. Major causes of an audit include mathematical errors, filing the wrong forms, underreporting income, and being dishonest. Most, if not all of these items can be nipped in the bud by proper and year-long tax planning, including the keeping of scrupulous records and documentation.
Utilize Tax-Deductible Opportunities When Appropriate
Our federal government provides a number of savings vehicles that enable you to deduct against your tax burden or defer the paying of taxes until years in the future. These include Individual Retirement Plans (IRAs), 401-Ks, health savings plans (HSA's), and others. Most folks know about these vehicles but if you don't, please educate yourself about Traditional and Roth IRAs at the very least. They can be important tax-mitigating tools as well as potent retirement plans.
The Biden Tax Plan: What We Know So Far
As of noon on January 20, 2021 Joe Biden will be the next President of the United States. He ran on a platform that included raising taxes on most corporations and many individuals. Early proposals by his camp would increase the corporate tax rate from 20 to 28%. In addition, individuals making over $400,00 will see their federal tax liability increased. Although much remains to be seen, changes are afoot making tax planning more important than during the last few years.
Are You a Do-It-Yourself or Should You Work With A Professional?
Many people prepare and file their federal taxes by themselves but, these days, the majority do not. In order to do it yourself in a competent and effective manner, you have to be fully abreast of the ever-changing federal tax code and actually enjoy working with numbers. Not everyone is in that boat. Perhaps you’d like some real expertise to help you with tax planning and filing. It may be prudent for many to work with a financial professional like the team at Chandler & Knowles throughout the year and especially at tax time.