Taxes are a pretty complicated matter, whether you’re a small or large business. That’s why it’s important to start planning your taxes to avoid any issues when it’s time to pay if to the government! From studying the recent tax laws down to implementing strategies to minimize tax costs, planning before tax season helps you save a lot of time, money, and effort for your business in the long run.
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The Importance of Tax Planning
You’re probably wondering: What’s the importance of planning ahead? Here are the following major benefits that tax planning can do for you:
- Pay Less Tax
This is the most important benefit and the main reason why many individuals and businesses start planning around their taxes as early as possible! You’ll be surprised with how much you can save from tax reductions and deductions in the future, which can be put to good use in both businesses and your personal lives.
- Take Advantage of Tax Law Changes
Almost every year, there will be a change in tax laws, may it be minor or major ones. Whatever the change is, it’s important to stay updated and plan in advance to take advantage of these changes and strategize plans based on such laws.
- Gives Enough Time to Implement Taxing Strategies
Remember, you’re running on a deadline and any of your strategies and ideas on tax planning require time to be accomplished before tax season. Plus, tax planning also has you be early on paying it with strategy in mind, so there’s no worry about legal issues if you’re late in paying.
- For Your Heirs
The fewer taxes you’ll pay now, the more you can spend on both your future and heirs. If you are already planning your will and testament, advance tax planning is beneficial, which can also lower the inheritance tax liability for your heirs in the future.
5 Important Tips for Tax Planning
Wondering where to get started when tax planning? Here are the five important tips to follow:
- Evaluate Both Current and Alternate Primary Residence Locations
Taxpayers from high-income-tax states such as California may end up paying more due to the maximum cap on a deduction for state and local taxes, or SALT. That’s why it’s best to review alternate states of primary residences, selecting the one that can lower tax expenses. Besides this, consider the other specific circumstances in your tax profile which can be affected by changes based on new tax laws.
As of this year, states without tax income are:
- South Dakota
- Concentrate the Charitable Deductions
Because of the increase in standard deduction amounts, some taxpayers might not be able to receive as much tax benefits from the charitable contributions made annually. To explain, if your amount of itemized deduction is less than the new, standard one, then there isn’t a tax benefit from the charitable gifts.
That’s why it’s best to concentrate the years’ worth of charitable gifts in one tax year instead. This helps you get the benefits over the standard deduction expected.
- Reconsider the Mortgage Debt
Depending on your situation, it can be helpful to reassess your debt level. For those who have low mortgage debt or interest expenses that aren’t high enough to generate tax benefits, it might be best to pay off your mortgage instead.
It’s important to consider your situation when paying for your home, including the interest rate you’re paying and its comparison with the after-tax rate of return. This prevents losing the benefit of tax deductions from your mortgage debt.
- Have a Portfolio Focused on Tax Efficiency
It’s crucial to always monitor your taxes and create a portfolio to keep track of how much you spend, from the big to small expenses. Take tax efficiency into account, which will help you find out if you’re eligible for more tax deductions, penalty relief, or gains. It will also help you see what you can do to plan ahead and strategize to pay less or equal to what you owe, rather than overpaying the government.
- Take Advantage of the New Collage Saving Plans
For those who are funding education for their children, then you might want to consider checking out the new plans from Section 529. This allows withdrawals of up to $10,000 every year for expenses in school tuition. Besides the expansion of expenses, there are now rollovers for individuals with disabilities.
Consider the impact when making withdrawals for school funds, also looking into the state you’re in as they might not offer the tax-free withdrawals for such expenses!
Wrapping It Up
Through efficient and effective tax planning, you will be able to preserve your wealth and make life easier, whether it’s your personal wealth or in the business. With the right strategies on tax planning, you’ll be able to save a lot and keep your business afloat with extra money to use for other important expenses.
Hopefully, this article on tax planning helped you out! So don’t wait any longer and begin following these tips now or visit https://twaccounting.com.au for more information and tax services.
If you have any questions or want to share your tips and experiences on tax planning, then comment below. Your thoughts are much appreciated.