Understanding The Basics Of Tax Planning

If you want to grow your wealth and boost your finances, then you should explore tax planning. It proactively helps both businesses and individuals manage their taxes effectively and make favorable financial decisions.

Sounds good?

If the answer is yes, continue reading to gain a basic understanding of tax planning and how a tax planning attorney can aid you achieve your financial goals.

What is Tax Planning?

Tax planning is the practice of analyzing a financial plan or situation to ensure it yields the best results while allowing you to pay the lowest amount of taxes possible. The plan minimizing your tax liability is also referred to as tax efficient and is an essential part of any effective financial plan. 

Generally, there are plenty of moving parts in a tax plan. For example, a tax planning attorney has to consider multiple factors such as the size, timing of the income, and timing of purchases, as well as set a plan for a plethora of other expenditures. 

A similar thing applies to investments and retirement plans, which need to complement your existing tax filing status, along with any applicable deductions to maximize your financial future.

Basic Tax Planning Strategies

Though a tax attorney will leverage various complex techniques to achieve your financial goals, for the most part, they’ll try to reduce your income by making contributions to retirement plans, using available tax credits, and identifying and applying tax deductions. 

The good news is that these tax-cutting methods are available to people in all earning brackets. For instance, every citizen can buy municipal bonds, contributing to health savings accounts and retirement accounts. 

Let’s analyze how these work in more detail.

We’ll take a retirement plan as an example. Contributing to it is an easy way to reduce taxes. By adding money to a traditional IRA, you can minimize your gross income by the amount you contribute. In case you’re under the age of 50, you’re legally allowed to contribute $7k, while individuals over 50 can make an extra $1k contribution. 

To put this into perspective, if you earned $75k this year and contributed the maximum amount of $7k to an IRA, your adjusted income would come to $68k and you’d be taxed accordingly as if you earned only $68k. The remaining $7k would grow “tax-free” until you withdraw it. 

Investing in a 401(k), on the other hand, is popular with companies, where the participants can defer their income directly into a shared company’s 401 (k) plan. 

The limit in 2024 is $23k with an additional possible contribution of $1k if you’re over 50. 

Is Tax Planning the Same As Tax Gain-Loss Harvesting?

Not exactly. However, tax gain-loss harvesting is another type of tax management that applies to investments. It helps set up a system in which the investment portfolio losses can be used to offset an individual’s capital gains. 

According to the IRS guidelines, all long and short-term losses can be used to offset capital gains of the same category. 

At the moment, the limits are 0% for filers whose income doesn’t exceed $47,025, the same as it is for a married person filing an individual tax return. The limit is $63k for someone who is the head of a household. 

For single individuals with income between the minimum limit and $518,900, the tax is 15%. Limits for filers who are the head of a household or a married person with a separate tax return are $551,350 and $291,850, respectively.

Lastly, a 20% tax will apply to anyone exceeding the aforementioned limits. 

Why You Should Hire A Tax Planning Attorney To Implement A Tax Plan For You

While you may consider doing tax planning on your own, hiring a professional to do it can save you money. Here are the benefits of hiring a tax planning attorney:

1. Receive professional advice

When it comes to dealing with IRS and tax laws, hiring a legal professional familiar with the tax codes is essential. Simply put, an attorney will know the ins and outs of tax filings, and they’ll also have the knowledge to provide you with the best advice on receiving tax benefits.

 2. Keeping up to date with new tax policies

As you’re probably aware, tax laws keep changing and it’s almost impossible for most regular people to stay on top of these updates. Yet, for a tax attorney, these are basically their bread and butter. Thus, the advice you receive will always be current and help you maximize your tax savings in accordance with new tax policies.

 3. Cost-savings

Sure, hiring an attorney will cost you money, but once you weigh the options, you’ll soon realize that your tax savings will likely offset the expenses of hiring a tax planning attorney. Not only will they assist you in minimizing the possibility of problems developing, but they can also help you achieve various tax benefits potentially pertinent to your situation that you might have otherwise overlooked.

Imagine you’re running a business - there are plenty of opportunities to find new deductions such as travel or food expenses. All of them have strict criteria, though, so having a tax professional clarify the specific instructions can help avoid making errors.

 4. Save time

Tax codes include thousands of pages, which isn’t something you can easily read through yourself, and in some cases, even understand properly. A tax attorney is familiar with these codes and their fine details, which allows them to save you valuable time. 

Plus, hiring someone to do tax planning for you can also help you stay on top of your tax obligations and even more importantly, record keeping.

 5. Avoid the trouble with the IRS

Inaccurate filings, deductions, and mistakes when minimizing your gross income can ultimately cause trouble if you make any mistakes. 

Fortunately, a tax planning attorney can make certain you avoid this trouble as you can rely on them for making error-free tax planning and filing choices.

Ready To Maximize Your Income?

Tax planning is an intricate process that lowers your tax liability. There is no shortage of legal ways you can go about it, including holding on to investments, offsetting capital gains with your capital losses, leveraging retirement plans, and finding new deductions. 

To start maximizing your income, reach out to tax planning professionals at Doane & Doane. As a company known for its expertise in all aspects of the tax code and estate planning, we have the know-how to boost your overall financial state through a customized tax plan. 

Regardless of your earnings, attorneys working at Doane & Doane can find the perfect strategy that will check all the marks.

Call 561-656-0200 or fill out our contact form to take the first step toward a brighter financial future.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.