It’s all the more important today that you maintain a strategic edge in terms of dealing with your taxes the most efficient way. Strategic tax planning has been proven to be most effective-a process used to reduce taxes for both individuals and businesses. Strategic tax planning can help you greatly when planning is done well before the end of the year. The urgency of dealing with your taxes now being the best time is important in the process of strategic tax planning. Business level and shareholder taxes are one of the most burdensome expenses small businesses tackle on a recurring annual basis and you as a business owner you always have to keep up with the constantly changing and complex tax laws to insure you are compliant and to minimize your liabilities.
Features of Strategic Tax Planning
· Understand your goals: Even as a business owner, when you do your tax planning, you do that at both the individual and business level to minimize your income taxes and save yourself money you need to grow your business. Remember, effective tax planning is about wealth management. To get through the process of tax planning in the most effective way, you start your planning by first understanding what your goals are and your overall business strategy. You then seek opportunities to minimize tax liabilities. You have to be proactive with your planning in the sense that you endeavor to understand your tax situation long before payment and tax returns are due.
· Endeavor to reduce your adjusted gross income: Your adjusted gross income is key in determining your tax bill. Adjusted gross income is the most significant measure of your net income minus any adjustments. The point is, the more money you make means the more taxes you pay; and the less you make, the less taxes you pay. So here is what you can legally do to reduce your income-you make contributions to a 401(k) or similar retirement plan. What you contribute to a 401(k) is what is factored in that reduces your gross income and that way you will see a lower tax bill. You can also make adjustment to your income by making contributions to a traditional IRA.
· Keep track of your expenses: Another feature of strategic tax planning is by increase of your tax deductions from your taxable income after you have reduced your adjusted gross income by any deductions and exemptions you may have. This is the essence of strategic tax planning-you keep track of your expenses throughout the year. Any of those personal finance programs online can help you track your expenses which you can itemize when you file your taxes. There are a few good user-friendly programs online such as Quickbooks, and Mint. The itemized deductions you should be tracking throughout the year include personal property taxes, state and local taxes, mortgage interest, expenses for healthcare, and gifts to charity. When you have a handle over your itemized deductions, your standard deduction and personal exemptions will now be determined based on your filing status and how many dependents you have.
Also, you can build on a strategic tax planning process when you know all about the available tax credits. The earned income tax credit is often used by many tax payers and often results in a tax refund regardless of whether your total tax is reduced to zero. You can also mitigate your tax obligations by increasing your withholdings with more money taken out of your paycheck throughout the year-as such you improve your chances for a bigger tax refund.