Tax planning can be the single most important thing you do for your financial stability when entering into a new year. The tax planning process is an intricate one that involves gathering information, organizing numbers and data, creating a comprehensive financial picture and charting the best course forward.
With tax season almost among us, take a look at the tips below. Use these tips as a guideline to help protect your financial interests and ensure a smooth, successful tax year.
Tip #1: Know The Basics
Before you begin your tax planning process, there are a few things to keep in mind. These may seem like no-brainers, but you’d be surprised at the number of people who sometimes overlook the obvious!
- Your income – a key determinant of the tax rate you are facing
- Your location – tax laws and guidelines differ from state to state
- Your expenditures – how much are you spending and where?
- Keeping a budget can help tremendously with this!
Tip #2: Work Closely With a CPA Firm
Maintaining a close relationship with your CPA is vital! Your CPA is there to help find approaches that work best for YOU. Some techniques are better suited for businesses, while others align better with educational institutions or nonprofits. Your accountant can help you identify specific financial areas that incur higher tax rates and form preventative strategies to avoid possible tax increases. With a professional accounting service, you lower the risk of making mistakes. Remember to communicate with your firm all year long, not just right before tax season.
Quarterly financial updates – Think about sending your CPA firm financial updates on a quarterly basis. When they evaluate your numbers regularly, your firm develops more accurate tax saving estimates.
Best practices – Inform your firm of all business decisions you’ve made throughout the year. If your CPA firm has all the correct information, they are able to provide you with the very best advice for the upcoming year.
Regulation changes – Tax laws change every year, sometimes several times within a year. Tax laws shouldn’t be a huge concern when filling out your tax forms, but they should be one of the first things you research before starting a new tax year. Your CPA can help keep you up-to-date with all regulation changes in order to better your financial plan.
Tip #3: Don’t Forget Retirement Plans
Everyone loves a tax decrease, but most folks overlook the fact that a retirement plan can be used as a tax-savings vehicle. Although your income is reduced when you contribute to your retirement plan, your taxes are reduced as well. Working with your CPA and wealth management advisor is a key factor in ensuring that you have the best plan in place. Don’t have a wealth management advisor? Don’t worry – your CPA can point you in the right direction.
Depending on your current standing with these factors, there are several tax planning strategies you and your CPA Firm might want to consider.
Standard and itemized deductions – You may want to consider itemizing your deductions if you pay a significantly high mortgage on an owned home.
Contribute funds to your retirement plan – The more money you make, the more taxes you pay. And the less money you make, the less taxes you pay. One of the best ways to lower your taxes is to decrease your income by contributing to your retirement plan. Your contribution reduces your income, which lowers your tax bill.
Want to learn more about securing tax-planning success? Contact us to start the conversation about your financial future with our firm – accountants who truly care about becoming a partner in your success.