When it comes to your financial planning, taxes can be a huge part of it. They can eat into your annual earnings, and they can affect the way you plan for retirement, business, and estate planning.
Fortunately, there are professionals who can help you optimize your tax situation and minimize your liability in the process. They are referred to as tax planners.
Taxes are a part of your financial plan
Taxes are the means governments at all levels use to finance their expenditures. They can be paid during the tax year by having them withheld from your wages or by making quarterly estimated taxes, if you have other kinds of income.
You can reduce how much you pay in taxes by planning how to use deductions and credits. However, because these areas of the tax code are often contested, they change frequently.
For example, the mortgage interest deduction, retirement savings exemption and education savings exemption are created to encourage personal goals such as home ownership, saving for education or accumulating retirement funds.
You can avoid overpaying in taxes by paying an accurate amount and putting the extra money to work through interest-generating accounts. You can also make adjustments to your withholding or estimated taxes, which could result in a tax refund.
Taxes are a part of your business plan
Taxes are one of the most important aspects of any business plan. They affect your cashflow, profits and company valuation.
Depending on your industry, the type of entity you create and where you operate, there are many different taxes to consider. These can include federal income tax, sales taxes and payroll taxes, as well as local taxes that are imposed on businesses.
Deductions are a popular way to reduce your taxable income. They can help you save hundreds of dollars, so it’s worth making sure you’re taking advantage of all the deductions you can.
If you’re preparing a business plan, it’s best to take the time to get familiar with your state and local tax laws. This can help you stay out of trouble with the IRS and ensure your taxes are filed accurately.
Taxes are a part of your retirement plan
A key part of planning for retirement is understanding your tax bill and how it will impact your income. Whether you receive Social Security benefits, pension payments, or annuity income, taxes can be a major consideration.
Many people who save for retirement use tax-deferred accounts, such as 401(k)s and traditional IRAs. These accounts allow savers to defer taxes on the growth of their contributions and investment gains, until they withdraw them in retirement.
Some employers also offer qualified retirement plans to their employees. These types of plans, which meet certain IRS Code requirements, provide tax advantages to both employers and employees.
Some small business owners and self-employed individuals set up their own retirement plans, such as a solo 401(k) plan or a SEP IRA. Both of these plans offer simple and low-cost options for saving for retirement.
Taxes are a part of your estate plan
Many people think of taxes as an afterthought, but they’re an important part of your estate plan. Taking steps to minimize the amount of taxes you’ll owe after your death can make a big difference in how much you leave behind for those you love.
There are several types of transfer taxes you may encounter, such as federal estate tax, state estate tax and inheritance tax. These taxes can be complicated, so it’s essential to have a firm understanding of them.
While estate taxes are generally assessed at a percentage of your gross estate, they can be mitigated by certain strategies. Ultimately, you’ll need to work with an attorney and a tax advisor to determine which methods will be most beneficial for you and your loved ones.
