Some Year-Round Tax Planning Pointers
While submitting a tax return can feel like a sigh of relief, the reality is that just because a taxpayer files a tax return doesn’t mean that he or she can forget about taxes until the next year. In fact, the kinds of tax planning taxpayers engage in during the year can affect how much they owe in taxes the next year, or the type of refund they could receive.
Organizing Your Tax Records
One thing that taxpayers can do throughout the year to stay on top of their tax situation is to organize their tax records. Whether taxpayers choose to use a software program for electronic storage or to keep physical copies in labeled folders, creating a system can ensure that all important tax-related information stays together. It’s also a good idea to add tax records to this system as they are received, so that everything remains up-to-date. Ultimately, having organized tax records will make the next year’s tax return preparation process a lot easier and can even help taxpayers identify deductions and credits that they may have overlooked at first.
Identifying Your Filing Status
Another step that taxpayers can take in advance of next year’s tax season is identifying their filing status. This status is extremely important, as it largely dictates a person’s filing requirements, standard deduction, eligibility for specific credits, and even how much tax he or she will need to pay. Major changes in family life, like marriage, divorce, or the birth of a child can all affect a person’s filing status, so if you recently underwent a major life event and have questions about how that affects your tax situation, don’t hesitate to reach out to an experienced tax lawyer for help.
Understanding Adjusted Gross Income
Adjusted Gross Income (AGI) is a term used to describe a person’s income from all sources, minus adjustments and deductions. In most cases, the higher a person’s AGI is, the higher his or her tax rate will also be. This in turn, will increase how much a person has to pay in taxes every year. When tax planning for the following year, taxpayers can try to make changes that will lower their AGI, as well as their tax liability.
Federal taxes operate on a pay-as-you-go basis, which means that taxpayers are required to pay most of what they owe in taxes as they earn income. In most cases, this is done through income withholding, where employers withhold a certain amount from a person’s paycheck to cover Social Security and Medicaid taxes. It’s important, however, for taxpayers to check how much is being withheld to ensure that it will continue to cover what they owe. To change one’s tax withholding, a person will need to provide his or her employer with an updated Form W-4.
Do You Need Help with Your Tax Planning?
To speak with CPA, former FBI Special Agent, and experienced Florida tax & IRS attorney Ronald Cutler, P.A. about the things you can do throughout the year to improve your tax situation, call 386-490-9949 and set up a free consultation today.