Tax planning is the process of devising and implementing strategies to reduce your liability.
Could you benefit from tax planning? Do any of these apply to you?
- You dread tax season because the number is a surprise. Could be a good surprise or a bad surprise but it’s a surprise.
- It’s a huge hassle to find all of your records and you’re not even sure you kept all of the necessary records.
- You are frustrated when you hear that there were steps you could have taken to lessen the tax bill but you didn’t know in time
- You’re worried that you don’t know what you don’t know
- You have an income
Here are 8 ways you may benefit from tax planning
Organization allows you to make better-informed decisions
Part of tax planning is organizing your financial information. This includes creating a statement of cash flows and a balance sheet. The statement of cash flows allows you to determine all of your sources of income and all of your expenses. Your balance sheet shows all of your assets and all of your liabilities and your net worth. Now you can see which assets make money and which cost money.
Planning for your taxes gives you better control over your cash flow
Rather than being surprised in April you can anticipate and make appropriate plans for your cash flow.
Lessen anxiety about your finances and at tax time
Stress and anxiety during tax season is common due to fear of the unknown. Fear of a large tax bill, fear that you could be completing your tax return incorrectly, fear that you may be paying far more or far less than you should be.
May allow you to keep more of your money this year
Taking advantage of common deductions such as contributions to retirement accounts can reduce your tax bill and keep more of your money in your name. Appropriately locating investments in accounts that get preferential tax treatment versus taxable accounts could save you money this year
May allow you to keep more of your money over time
Understanding your current and projected future tax situation allows you to make better decisions about saving, investing and employer benefits such as deferred compensation plans and health savings accounts which can provide long-term benefits
May head off future issues
Without planning some tax payers may put themselves in a difficult position in their retirement years – creating a larger tax burden in the future by deferring too much today.
Gives a head start on estate planning
Tax planning is a large part of estate planning and a significant part of comprehensive financial planning
May allow you to use valuable strategies
There are tax strategies that have specific requirements such as time restrictions or trading or ownership restrictions on investments. Without a long-term plan you may unnecessarily forfeit your ability to employ these strategies by acting with only a short-term view
Work with a financial advisor who can help you craft a strategy to minimize your tax liability and plan for your future goals.