How to Plan Your Taxes In 4 Steps
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Can you believe it’s been over one month since Tax Day? Like most people, you might be sighing in relief that you finally filed all your taxes. However, now that Tax Day won’t be around for another year, it’s the perfect time to start planning ahead! Why? The problem with taxes is that it seems so complicated. A study on how people view taxes found that over 50% of respondents dreaded Tax Day, citing the time and paperwork needed as their reasons. Because of this, learning how to plan your taxes can be daunting.
What’s worse is that you might be so confused that you forget to apply for proper deductions or miscalculate your numbers. If you want to know how to plan your taxes, what better time to start than now? In this article, you’ll discover how to plan your taxes and save yourself a load of stress!
What is a tax plan?
For those filing taxes for the first time, a tax plan is simply a careful analysis of your taxes and potential deductions. When done right, you can discover the most affordable path to paying off all your necessary dues. As you can imagine, different people have different taxes and tax deductions that apply.
For example, you might be a single person who only needs to file your income taxes and retirement plans. However, you could also be a family mean learning how to plan your taxes to include your spouse, your children, and the property.
What should be considered when learning how to plan your taxes?
To understand how to plan your taxes, you need to know what you’re likely paying for. Different commodities in our lives have specific taxes attached to them. Knowing what you might pay for can make a big difference when it’s time to do the paperwork. To help you learn how to plan your taxes, here are some taxable things you need to watch for.
Income
When learning how to plan your taxes, the first and most important tax to consider is your income tax. This is the amount you pay from your line of work to the state or federal government. If you earn a lot of income, the ideal situation is that you pay a higher amount of taxes.
There are plenty of factors that can change how much income tax you have to cover. It’s important that you understand these different variables when learning how to plan your taxes. The different factors you need to consider include:
- Marriage (you can file together or separately)
- Source of income (it varies depending on the industry and type of employment)
- Capital gains (applicable to investors, as it concerns their assets and resulting sales)
Property
Where you live also has an effect on the taxes you pay. If you’re a homeowner or you own real estate, it’s important to understand how to plan your taxes for these areas. You might pay these taxes as part of your mortgage or on a yearly basis.
What makes this aspect unique is that it requires frequent assessment. Typically, the value of a property has to be checked every few months to see if it has grown or fallen. There are various factors that also affect its market price, from location to onsite renovations or changes. So, if you’re planning to renovate your home, make sure you understand its potential impact on your finances. That way, you’ll know how to plan your taxes with the right estimations!
Sales
Lastly, there is also the power of sales taxes. For those who own businesses or are planning to start one, these taxes are crucial to your operation. Depending on the state you live in, these percentages are paid by the customer to raise revenue. If you want to know how to plan your taxes, make sure you understand the nature of your work. That way, you won’t be shortchanging yourself or the authorities when it’s time to pay.
How can I start an effective tax plan?
Now that you know what type of taxes you might cover, it’s time to step up your tax game. Learning how to plan your taxes can help you examine what you owe and what you can deduct. It’s not just about paying your dues; it’s also about learning what you’re entitled to keep. Here are four easy steps to start an effective tax plan!
1. Monitor your income streams closely.
The first step of learning how to plan your taxes is to watch over your income streams. The IRS wants to know about all your sources of income, not just your regular 9 to 5. By tracking these sources diligently, you can get a clearer picture of your finances. Remember that the taxes due for each income stream can vary, depending on where it comes from.
2. Secure all necessary documents in advance.
If you find Tax Day chaotic, that could be from all the prep work you need to do. Make the process smoother by preparing all necessary documents in advance. It’s important to gather all the paperwork, such as the receipts for deductible expenses and records of the previous year’s tax return, as soon as possible. This way, you only need to fill in the blanks when you need to file your tax form. Plus, it gives you plenty of time to study how to plan your taxes!
3. Research all applicable tax deductions.
The best thing about learning how to plan your taxes is finding all potential deductions. Think of it as Uncle Sam’s discounts. There are multiple kinds that you might qualify for, from well-known options like student loan interest and to the lesser-known types like moving expenses. By doing a bit of homework, you can find all the tax breaks you’re eligible for and lower your tax bill in a jiffy!
4. Consult with a professional.
Learning how to plan your taxes can be tough, especially when new tax laws or standards are signed. Without a proper guide, you might lose track of what you have to do every Tax Day. That’s why it’s always important to consult a tax professional whenever possible. Think of them as wise tax gurus that stay up-to-date with all the latest tax law changes. Plus, for the right price, they can help you streamline your tax planning process to help you save money!
Takeaways:
- A tax plan is a careful analysis of your taxes and potential deductions to find the most affordable path to paying your dues.
- Different people have different taxes and tax deductions that apply based on their income, marital status, and other factors.
- There are multiple factors to consider when you start learning how to plan your taxes. These include:
- Sources of income
- Marital status
- Capital gains
- Property, and
- Sales tax (if applicable)
- Understanding how to plan your taxes can help examine what you owe and what you can deduct for a better financial strategy.
- Start your tax plan immediately after Tax Day. This allows ample time for preparation and reduces stress.
- When planning your taxes, keep track of your different income streams as the IRS wants to know about all sources of income.
- Preparation is key: gather all necessary documents well in advance of Tax Day, such as receipts for deductible expenses and records of the previous year's tax return.
- Research potential tax deductions, which can significantly lower your tax bill.
- Consulting with a tax professional can be very helpful, as they stay up-to-date with the latest tax law changes and can provide personalized advice.
- Sources of income
- Marital status
- Capital gains
- Property, and
- Sales tax (if applicable)
Like what you’ve seen? If you want to know how to become the best version of yourself, check out Munif Ali on Medium here! I’ll be your trusted companion on the road to personal and professional success. You can also get my FREE ebook by clicking this link. Learn practical tips on money management to become a millennial millionaire today!
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