Most of us don’t realize the importance of tax planning until the first week of April. It is also at that time when we also realize how important it is to plan your taxes in advance and understand tax planning strategies.
In this post, we will talk about some basic tax planning strategies that you can implement to keep more money in your pockets.
Plan Early For Each Financial Year
Tax saving should be done throughout the year, preferably at the beginning of each financial year. This is because tax planning has two parts:
- Avoid tax by deduction of expenses and investments etc.,
- Reduce tax liability by making use of available exemptions and deductions
Tax planning is an important part of saving money. The tax planning process begins with understanding your financial situation and making conscious decisions to reduce or eliminate unnecessary expenses.
What Does Tax Planning Mean?
It’s not just about finding ways to save on taxes for this year – it’s about finding ways to lower your overall tax burden over time and improve the financial position of your business. This includes everything
- From minimizing deductions, so that they don’t exceed gross income,
- Understanding what expenses are eligible for deduction,
- How much can be claimed as a deduction, u
- Understanding how different types of income affect Your ability to claim deductions on overall net profits, etc.
- Hiring tax filing services in advance.
Use Tax-Free Savings Account
One of the best ways to save on taxes is by using a tax-free savings account (TFSA). A TFSA is similar to an RRSP, but it doesn’t require you to pay back any money you put into it when you retire. You can contribute up to $5,500 per year without paying any income tax on interest earned plus capital gains within the account.
Basic Tax Planning Strategies
It is never too early to start planning for taxes. Even if you have not yet filed your returns, it is important to plan ahead in order to save money on taxes.
Tax planning is not just about doing your taxes. Tax planning involves making your money work for you, which means that you should use strategies and techniques that can help you reduce your tax liability as much as possible.
Taxpayers should also consider whether their current situation will allow them to set aside some money for future expenses such as college tuition fees or retirement benefits so they don’t have any surprises once that time comes around.
Understand The Capital Gains Tax Rules
Capital gains tax is a tax on the profit that you make on the sale of capital assets. Capital assets are any assets that produce income, such as stocks and bonds, real estate properties and rental properties, or commodities like gold or silver bullion.
Such gains tax is not the same as income tax. Income taxes are paid on your total taxable income and apply to all sources of earnings including employment compensation, interest income and dividends received from investments in mutual funds.
These gains taxes apply only to sales of assets that have appreciated in value since they were first purchased by reducing the amount of money invested into their purchase price when calculating their capital gains. For example: If an investor buys stock worth $100 for $50 then sells it later at $150 then he would pay 15% capital gains tax on his profit which equals $15 per share ($150 – $125).
Save on Rental Property
Rental property is a great investment option because it provides you with the opportunity to save on taxes, too. This article will tell you how to do that.
- Rental property tax deductions: The IRS allows all real estate investors to deduct expenses related to rental properties and other investments. These deductions may include mortgage interest payments, maintenance costs (such as painting), and depreciation. In addition, if your rental property is located in an area where you pay higher local taxes than others (for example, New York City or Chicago), then these costs can be deducted from your taxable income as well.
- Rental property tax planning: You should also consider taking advantage of any opportunities for tax planning during the year so that less money gets withheld from your paycheck at the end of the year when it comes time for taxes.
Set up an Emergency Fund for One-Time Expenses
An emergency fund is a pool of money that you put aside in case something unexpected happens and you need to cover the cost.
If you’re already saving for retirement, go ahead and use your 401(k) to save for emergencies. If not, start an HSA, IRA or other tax-advantaged savings account today.
How much should I save?
Start small and work your way up over time. Ten percent of your monthly earnings could be a good place to begin – that means $60 per month if you make $600 per month after taxes (10% of 1250). Once you’ve established this habit and have seen its benefits first hand, consider increasing your savings rate by 1% every six months until it reaches 10%. Remember: there’s no harm in starting small!
Keep Track of Your Investments
A good way to make sure that you are maximizing your tax savings is to keep track of your investments. Keeping a record of what you own, where it is located and the value of each asset can help you make better decisions about when to sell and how much money will be generated by the sale.
You may want to set up an Excel spreadsheet or even just a notebook that contains all this information so it is easy for you to access whenever necessary. Keeping track of these items allows investors who are making significant changes in their portfolios, such as selling a large amount or moving from one type of investment into another type with different tax implications, get an idea about what kind of impact these changes might have on their overall financial picture over time.
Conclusion
There are many tax planning strategies that you could employ to save more money on taxes. This can be done by implementing these simple strategies and keeping track of your finances throughout the year.
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