Tax Planning Strategies: Tips, Steps, Resources for Planning

Do you want to…

save extra bucks for yourself on taxes?

Avoid tax penalties?

Get the most from a tax deduction?

Keep your financial documents organized?

And plan for the future?

Then this article is for you.

In this article, you will access helpful tips, steps, and resources that you need to plan your taxes strategically.

Tax planning involves taking a careful look at your financial situation and devising an effective way to minimize the amount paid on taxes.

A tax planning strategy allows you to be proactive in all spending and savings rather than reacting when you get the tax bill.

As a Taxpayer, your income tax planning should be an essential part of your financial activities, and neglect of this can lead to lifelong regret.

Tax Planning for individuals.

Here are some tips that can aid you in your income tax planning as an individual:

1. Know your tax Bracket: A good understanding of the tax bracket is an excellent first step to tax planning. The US tax bracket is progressive, which means that additional income is taxed at a higher rate. Tax rates are also marginal; that is, not all your income is taxed at the same rate. Income is divided into different brackets that have different rates.

There are seven federal income tax rates in 2022: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Taxpayers with taxable income exceeding $539,900 for single filers and $647,850 for married couples filing jointly were subject to a 37 percent marginal income tax rate.

2. Gather all Required tax Forms: Gather and carefully organize all the annual tax documents you have received that record your taxable income and deductible expenses. Every necessary document from your employer(s), bank, etc., should be in your hand by the end of January. You must confirm that the information on each document matches what you have.

3. Defer income: You will likely be able to minimize your income tax liability by deferring your income to a later year. Retirement plans such as the traditional 401(k) can significantly help.

4. Maximize the tax Advantages of Retirement Accounts: Another strategic way to minimize your yearly taxes is by making maximum contributions to your retirement account(s).

Some tips that can help you Achieve this include:

  • Take advantage of any available tax deduction. Evaluate your finances and, if possible, make a maximum contribution to your 401(k).
  • Give out appreciated stock to charity instead of cash. This can be of tax advantage to you.
  • Carefully assess your assets to determine potential long-term capital gains, taxed at lower rates than short-term capital gains or ordinary income.

Top 10 Tax Planning Strategies - Save on Your Taxes - WealthAbility

Resources for Individual Tax Planning Strategies:

  • Internal Revenue Service, Credits and Deductions for Individuals — Individuals can use this page to learn about the various tax credits and deductions available.
  • Internal Revenue Service, Good Tax Planning Includes Good Recordkeeping — Here, you will find helpful tips for organizing your tax records.

As an individual, a significant benefit that tax planning affords you is that it helps you make sound financial decisions. You become more aware of how you spend and save your money.

Tax Planning tips for Businesses.

Tax planning can subtly determine the survival of your business. It is worthy to note that a tax strategy offers your company some framework that helps you fulfill your tax obligations without overpaying.

As a business owner, you must know the various taxes you may be subject to and the requirement for each one. The basic types of business tax that may concern you include income tax, estimated tax, employment tax, and excise tax.

Knowing and utilizing the tax deductions and tax credits available for your business is equally important.

For the tax credit, the following exists:

  • Coronavirus tax Relief: Some programs developed to help businesses affected by COVID-19 are the employee retention credit, C corporation net operating loss (NOL) carrybacks, etc.
  • Small Business Healthcare tax Credit: This is a deal you should consider if your business has less than 25 full-time equivalent employees. The average employee salary is $50,000 or less, and the company must pay at least half of the employee’s health insurance premiums. Your company must also provide all full-time employees with coverage.
  • Work Opportunity Tax Credit: If your business hires people from groups facing significant employment barriers, you are qualified to claim this credit. These groups include former prisoners, eligible veterans, vocational rehabilitation referrals, etc.

In addition, some of the tax deductions your small business may qualify for include rent, business insurance, business loan interest, advertising and promotion, expenses related to obtaining or maintaining professional licenses or memberships in an industry organization, office supplies, travel, etc.

Tax Planning for Corporations.

Of a truth, the importance of organizing your finances to avoid tax liability cannot be overemphasized. I bet you wouldn’t want to take chances if you are a part of the shareholders in a large corporation.

Whatever the size of your corporation, you can be sure that there will be one or more tax planning opportunities for you to utilize.

Tax planning for a corporation at the local level is carried out by comparing the company’s income generation activities, expenses, benefits, other deductions, profit distribution, tax rates, and any other variable that may affect the final result to the applicable law to find optimization opportunities.

Multinational enterprises can use international tax planning and local planning strategies to take advantage of differences in tax rates from one jurisdiction to another and different tax benefits that may be offered between jurisdictions.

As an entrepreneur or a small business owner, deciding to be deliberate about how much you pay on taxes will enable you to utilize tax credits and deductions maximally.

Resources for Small Business Tax Planning Strategies:

  • Small Business Administration, Tax Planning and Reporting for a Small Business — A guide for proposed tax planning requirements, including a pretest and a self-test.
  • Internal Revenue Service, Small Business and Self-Employed Tax Center — Information for those filing Form 1040 or 1040-SR; Form 2106; and Schedule C, E, or F.
  • Internal Revenue Service, Deducting Business Expenses — An explanation of all the different types of deductions available to small businesses and self-employed individuals.

In summary, planning is the key to achieving financial goals for individuals and businesses. The importance of tax planning can be seen in the amount of money you can save by taking the necessary steps to reduce the tax burden. Those steps might change as a company grows or an individual advances in their career. However, careful strategic tax planning will always be essential.