As the financial year comes to an end, many of us begin to fret about optimizing our tax liabilities and timely file our returns. During these times, most taxpayers realize that they should have opted for tax planning in advance to avoid the state of stress and panic. Undoubtedly, prompt tax planning is the best option for any taxpayer, whether for an individual or a business venture.
As the result of the COVID-19 outbreak in the past year, the relevance of sensible tax planning manifolds. There has been the introduction of many tax-related reliefs and measures. Many taxpayers in the US are also undergoing financial turmoil, and tax planning can help you to lower its impact.
The tax professionals from Initor Global are here to help you discover some crucial aspects of tax planning, especially for all individual taxpayers in the US.
What is the meaning of tax planning?
Tax planning refers to a logical evaluation of the different earnings and expenses of an individual or a business entity to enable optimization of the tax obligations payable. Taxation can prove to be a bit complex to gauge for many persons.
Strategic tax planning allows you to make the most out of the available tax incentives and deductions to lower your taxable income. It even allows you to make profitable investment decisions. Let us find out some impressive pros of tax planning.
What are the key benefits of tax planning?
Adequate tax planning offers ample benefits to every taxpayer. In the case of an individual taxpayer, tax planning provides the following perks:
- Tax planning is the best resort for saving your money
A penny saved is a penny earned. Proper tax planning allows you to save some extra bucks, which otherwise would have escaped your pockets in the form of taxes.
- Improves the efficiency of the overall financial plans
It is vital to prepare and implement a proper financial plan for a secure future for you and your family as an individual. Tax planning enhances the effectiveness of your overall financial plan to a considerable extent.
- Enables suitable channelization of your money in good investment options
Using the medium of appropriate tax planning, you can gain useful insights into different investment options. You can park your money in legitimate and return-generating investment plans, which can even help you save some additional tax.
- Lowers the possibility of legal issues in the future
Tax planning reduces the probability of non-compliance with the applicable tax regulations. It thus reduces the risk of legal troubles such as tax assessments and penalties for taxpayers. With proficient tax planning, they can attain peace of mind that they shall not invite major legal problems for themselves.
- Acts as a factor to foster economic stability
When taxpaying individuals undertake proper tax planning, they are able to file their returns and taxes duly. The individual is aware of his financial situation in advance and can take the necessary measures to tackle any issues. Even the government authorities get their tax revenue on time, and there is a lesser tussle between the taxpayers and the authorities. This ultimately contributes to the economic stability of the country.
What are the important pointers to note while initiating tax planning for individual taxpayers?
Now that you have got a brief on the meaning and benefits of tax planning, you might feel compelled to know how you can begin the same. Let us venture together to find out about some important steps you need to take during the start of your tax planning process.
- First, get a copy of your previously filed federal tax return
Once you get hold of your past tax return details, you should analyze the same for the relevant income and expenditures you incurred in the preceding year. It would be best if you also checked out the deductions you claimed on behalf of your dependents. You must look into the avenue of claiming deductions on behalf of more dependants as per the legal guidelines. It is best to review the tax details of the past two financial years to properly conclude the possible sum of your taxable income.
- Get a tax organizer
A tax organizer comes with pre-listed order of all the income, expense, and deductions related aspects. It comes in very handy and lowers the probability of forgoing any important info.
- Update your present tax filing status if needed
It is essential to select the correct filing status. You must consider a change in the same if there is an instance of divorce or the unfortunate event of your spouse’s death.
What necessary aspects related to the individual’s overall income should you consider during the tax planning phase?
Anyone who is embarking on tax planning must consider the tips enlisted below while estimating their taxable income.
- Assess whether there shall be any changes in the earnings in contrast to the previous years. Check out if there are new income sources or any major rise in the earnings.
- Consider the possibility of change in the status of the taxpayer’s dependent, whether they need to file a tax return separately or not.
- If the individual is investing in mutual funds, you should take into account the nature of the fund to see if it is a growth fund or a regular one. It would help if you also explored the ability to roll over funds from IRA.
- In cases where a property sale is anticipated, it is important to appraise the use of any given tax planning strategy that will allow an individual to defer his taxes. One must also check out the income that shall flow through schedule K-1 of IRS Form 1065.
Which points should you consider to optimize your tax liability adequately?
Our tax veterans at Initor suggest reviewing the following pieces of advice to optimize the tax obligations thoroughly.
- Ensure that all relevant deductions and credits get utilized. One must leverage utmost benefit from the QBI deductions under section 199-A of IRC.
- Check that no expenses are left out while estimating the taxable income, especially if the individual is a business owner. Use auto miles if the costs actually incurred are less. Also, look for the possibility to take home office deductions.
- Retain pertinent details related to dependents when you credits like child tax credit. Also, do not forget about Qualified Tuition Expenses.
- Duly account for deductions as per Schedule A. Include deductible spends like charitable contributions and medical bills.
- Carry forward the losses from the past periods with the highest level of precision. Accurately set-off the eligible losses to lower your tax liability to a sizeable degree.
- Keep in mind to take energy credits. If an individual holds qualified marketplace insurance as per 1095-A, it is important to see that the advance premium payable is within the thresholds specified as per regulations. Otherwise, check the taxability of the same.
- It is suggested to make an effective estimate of the tax obligations well before time to ensure timely payment and avoid penal actions.
Set your Individual Tax Planning Demands on Track with Initor Global!
With the team of crackerjack tax specialists, Initor Global looks to resolve your tax planning woes. We assist many CPA and accounting firms in availing of the numerous advantages of tax preparation outsourcing and gaining a competitive edge in the market.
Our experience and proficiency can help you to ensure proper compliance with your tax commitments. Initor even possesses the technological shrewdness to handle online tax requirements with utmost efficiency. Initor’s pocket-friendly services can support many entities in earning increased returns for their accounting business. Contact our professional team to know more about our tax outsourcing services.