Virtually every country in the world requires its residents to pay taxes on income earned, on goods purchased and property owned. No matter what type of taxes are concerned, the practice of tax planning can be applied to reduce how much you owe and stretch out when taxes are due. Let’s dive into the basics of tax planning. Keep in mind that, while you won’t learn how to carry tax planning out, you’ll gain a solid foundation to build upon.
Time Value of Money
Inflation refers to the gradual loss of money’s value over time. In other words, $100 from 100 years ago is worth considerably more than it is today. As such, if you owe $100 in taxes, you’re better off paying what you owe as far off in the future as possible, thanks to inflation. The difference in the value of money over time due to inflation is known as the time value of money, something that Tulsa accountants in Tulsa, OK, all know about. With tax planning, you can readily postpone when taxes are due, effectively saving you money.
Staying Away From High Marginal Rates
As a single filer, all income above $204,100 is subject to a 35-percent tax rate. Assume your taxable income is $210,100 for 2019. Rather than paying higher tax on this additional $6,000, consider stowing it away in an individual retirement account, which isn’t taxed until you pull money out of it. In 2019, you can contribute a maximum of $6,000 to IRAs. This is one example of how tax planners help people avoid higher tax rates.
Select the Right Investments
Skilled Tulsa accountants in Tulsa, OK, know that certain investments’ earnings aren’t subject to certain taxes. For example, any interest you make from city- or state-issued bonds isn’t taxable at the federal level. If you have safe, low-return investments like bonds, for example, sell them and buy city- or state-issued bonds to reduce taxes on your investment income. Some other investments have similar tax advantages.
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