Tax Planning Is an Investment That Pays Off

Just because you don't make an executive's salary doesn't mean that tax planning won't benefit you. In fact, millions of middle and lower income workers overpay taxes, and with the right tax preparation help, you can be confident you won't pay a dime more than what you are required to. Planning for your particular tax situation is an investment that pays off regardless of your income level. When you work with a tax preparer who views tax planning as a year-round part of a comprehensive financial plan, you make the most of your income and can be sure you're not overpaying on your taxes. There Are Many Ways to Reduce Your Adjusted Gross Income Your Adjusted Gross Income, or AGI, is a very important number on your tax return, and is a great place to start your tax plan. Reducing your income is the best way to reduce the taxes you owe. Don't worry: that doesn't mean taking a lower paying job. You can reduce your income in ways that benefit you greatly down the road. Contributing to a 401K or an IRA are two great ways to reduce your AGI and lower your tax bill. And when you're approaching retirement, you will be thankful that you had the foresight to make these investments. Could You Be Eligible for Tax Credits? You may be eligible for tax credits you aren't aware of. Tax credits are great because unlike deductions, they directly go toward your tax bill. There are tax credits for many situations, including for those paying for college and those who adopt children. Even if you take college courses unrelated to your career, you could benefit from college tax credits. Many lower income workers are eligible for the Earned Income Credit, or EIC. With the EIC, even if your tax bill is zero, you can use this credit to get a tax refund. Will Your Tax Preparer Evaluate Your Previous Returns? Many tax preparers are only available from the beginning of the year through April 15, and they don't care about your past years' returns. But a tax preparer who believes in tax planning may offer the service of examining your past income tax returns and when appropriate, filing amended returns to help your tax situation. This is another way that a year-round approach to planning for taxes can pay off well. Tax Planning Is Part of a Comprehensive Financial Plan You may think that you don't need financial planning help since you're "only" a nurse or an electrician. The truth is, just about everyone can benefit from financial planning. The money you invest working with a financial planner who understands how to minimize the taxes you owe is more than paid back over the years as you stop paying taxes you don't owe, and are able to set aside money for the future without hurting your tax situation. Tax preparation is more than just meeting the April 15 deadline. It can make a big difference in your quality of life.