Reducing Your Taxable Income with Effective Tax Planning
Tax planning allows you to achieve tax efficiency, which comes down to legally limiting your tax responsibility. The idea is to keep as much of your income as the law allows, and the complexities of both state and federal taxes make putting careful consideration into tax planning an excellent idea that a savvy Chester Springs tax consultant can help you with.
Don’t Wait until Tax Season to Think about Your Taxes
A proactive approach that allows greater flexibility is a key component of effective tax planning. By considering it, you can identify the tax bracket you’ll likely be in and plan accordingly. This helps ensure that you won’t be squeezed out of a tax benefit you may have otherwise been entitled to.
Contribute to Your HSA
If you qualify for a health savings plan, which generally applies to those whose health insurance policies include high deductibles, the contributions you make to it are pre-tax dollars, which reduces your taxable income for the year. Further, growth on the investment is tax-free, and so are the withdrawals you take for qualified medical expenses. HSAs are the only financial tool that boasts this triple-tax advantage.
Maximize Your Contributions to Retirement Accounts
When you contribute to your retirement accounts, you save for your future and can help minimize your current-year tax bill. Consider the following:
- With a traditional 401(k), your contributions will be subtracted from your taxable income, reducing that amount and putting you in a lower tax bracket – if your income is close to the dividing line.
- Your contributions to a traditional IRA may be tax-deductible, depending on your income level and whether your employer offers a retirement plan.
- While Roth IRAs are funded with contributions that have already been taxed, they lead to future tax-free distributions under the right conditions.
Maximize Those Deductions
Maximizing your deductions is essential if you’re itemizing your taxes, as it directly reduces your taxable income. Itemizing tends to be beneficial when the amount of personal deductions you have exceeds the standard deduction allowed. Prime examples include each of the following:
- Mortgage interest deductions up to specific limitations
- Qualified charitable gifts
- Unreimbursed medical and dental expenses that exceed 7.5 percent of your adjusted gross income
Discuss Tax Planning with a Trusted Tax Consultant Today
Putting some effort into your taxes upfront will help minimize your overall tax responsibility in the long run. The focused tax professionals at Phoenix Tax Consultants, in Chester Springs, PA, have a wealth of experience helping clients like you use tax planning to protect their bottom lines, and we’re here for you, too. There are steps you can take to help reduce your tax obligation this year, so please don’t wait to learn more by reaching out and contacting us online or calling us at (610) 933-3507 today.