Tax planning entails all the activities you do to ensure that you pay minimal taxes without bending or breaking the law. It requires you to use all the knowledge and tools of finance you know so as to reduce your expenditure, file your tax payments and balance your check book thereafter. Planning your taxes requires a lot of concentration, diligence and discipline on your part. It’s like starting a mission to reduce your expenditure. Without diligence and discipline, all your efforts will go to waste.
Here are some practical ways to do your tax planning:
Keep Records of At Least Three Years
This is in case of an IRS audit. This will give you easy time since during the audit; you will not have to run left, right and center to get those receipts. It will also help you keep track of your taxes. This will allow you to monitor whether you taxes are increasing or not. If they are increasing, then the strategies you put in place for tax planning are failing.
Instead of Making Short Term Investments, Make Long Term Investments
This will see you save money since most of the short term investments are taxed monthly. If you add this up to a year, you will realize that you have paid a lot of money in taxes. However, if you invest for a year, then you will only have to pay a tax of about fifteen percent per year. This is far much less than what you pay for short term investment.
Donate to Charity
The IRS will only accept receipts of up to 250$ only but you can give as much as you want. Remember that giving to charity is a good way of refreshing yourself. All the old things you have you give away and make room for new ones. It also saves you from the storage dilemma.
In addition to all these, donating to charity saves you money in taxes. 250$ in tax money is a lot of money. It will make a difference if you factor it in.
Keep Every Receipt
Most people tend to think that this is for the IRS, but it’s not. It is for your benefit. The receipts will not only help you calculate how much you owe the IRS, but also help you in paying less. For instance, there are certain receipts that will see your taxes deducted which will make the lower than they could have been.
When you doing tax planning, you will realize that you pay little to the government without having to resort to tax evasion. You will realize that at the end of this exercise, even your financial habits throughout the year will have changed. You will have more to save in your personal savings account, a lot more to invest and very little to give to the government. The beauty of planning you taxes throughout the year is that it keeps you on toes. You always have to be careful about your expenses and your receipts.