In economies around the globe, national debt is getting out of control. In order to lead the nation towards a debt-free life and set its track towards prosperity and welfare, government revises tax brackets almost every year. High tax brackets if, on one hand, are facilitating government to accumulate revenue then on the other hand, are also posing a burden on every individual, retail and wholesale business to spend more money every year.
What is Tax Planning?
Tax planning is helping individuals to become smart and save money by reducing their taxable income. It takes into account all the tools and techniques one can use to reduce their taxable income and pay less taxes. Tax planning applies the true knowledge of available tax credits and tax exemptions and leads the individual to make the most of them.
Tax Planning is an ongoing process which requires individuals to plan their financial position all the year through. It allows them to identify their needs, plan each and every activity of their daily life and claim tax benefits based on them. There are targeted areas of tax planning that should be planned to control your financial affairs so that you may save bucks.
Areas of Planning
This is for sure that we all want to save money on our tax liability but we don’t know what can help us to achieve our goal. According to an estimation, less than 5% of salaried individuals know how they can optimize their tax liability. If you want to be in smart group of people, learn the three areas of tax planning that can bring drastic economy in your tax liability.
Reporting Less income
The income tax rate is directly proportional to the income of an individual. The more is your income the higher would be your income tax bracket. In order to reduce your income and lower tax liability, you can earn less income and make additional money through dividends, capital gains and interest income. You can also make adjustments (dedications) to your income by making contributions to traditional Individual Retirement Account and heath saving accounts, showing classroom related expenses, student loan interest paid, alimony paid and many other such adjustments.
Adding Tax Deductions
In order to reach at taxable income, there are several deductions allowed by the law to determine tax liability. These deductions include investment expenses, tax preparation fees, gifts given to someone, charity, mortgage interests, property taxes, health insurance premiums, meals provided at the work place, retirement planning services, inheritances, cash rebates won from manufacturers or suppliers and group term life insurance premiums. If you know the types of deductions, try to spend the major portion of your income on these tax-deductible activities.
Increasing Tax Credits
There are also many tax credits which help to reduce your income tax liability. Tax credits include child tax, dependent care tax, adoption tax, and electric car, credit for elderly people and disabled people, retirement saving contribution, home energy tax, student income and foreign tax credit. If you want to take lifetime college classes or have or adopt a baby some time in future, you might want to consider doing it a bit sooner since it will help reduce your tax. Moreover, taking an earned income tax credit is also a wise idea which often results in a tax refund.
Note: Be careful while submitting your tax returns and never forget to study the current tax implications of the country you reside in, since tax liability varies from country to country.
Julie Robert is a B2B wholesale trade and B2B marketing expert. She writes frequently on the topics related to UK Wholesalers and trade suppliers.Tax Planning – Three areas of planning that can save bucks!