As the end of the tax year approaches, you can probably get a rough idea of how much you’ll owe in taxes. To lower your tax bite, it is wise to take certain steps at year-end. Numerous strategies exist to help you, including reviewing professionally developed year-end tax checklists, performing a marginal tax rate analysis to ensure that you won’t be pushed into a higher tax bracket unnecessarily, and postponing income and accelerating deductions (or vice versa).
Year-end tax planning and also investment decision-making may sometimes result in substantial tax savings. Year-end tax planning primarily concerns the timing and the method by which you report your income and claim your deductions and credits. The basic strategy for year-end planning is to time your recognition of income so that it will be taxed at a lower rate, and to time your deductible expenses so that they may be claimed in tax years when you are in a higher tax bracket. In a nutshell, you should try to do the following:
- Recognize income when your tax bracket is lower
- Pay deductible expenses when your tax bracket is higher
- Postpone the payment of tax whenever possible
Can checklists help you? Yes they can, but “How Do I Reduce My Taxes?”
Tax planners develop checklists to guide taxpayers toward year-end strategies that might help to reduce their taxes. These checklists offer several suggestions and are arranged in categories, such as “Retirement Planning Checklist.” The checklists trigger tax-savings ideas that may not have occurred to you. At the Tax Reduction Network, we provide these checklists during our clients’ annual reviews. Our clients have saved thousands of dollars by not overpaying their income taxes year after year! So you can show me how to reduce tax liability!
For instance, one suggestion may be to shift income at the year’s end to family members who are in lower tax brackets to minimize your overall taxes. Another suggestion might be for a married person to calculate his or her taxes two ways, using both married filing jointly status and married filing separately status, in order to minimize income tax liability.