Business or Personal, Tax Planning Is A Key Element of Wealth Protection
Personal tax planning and business tax planning are two of the foundations of wealth protection. After all, few entities have the scope and authority to take more of your wealth away than your local, state, and/or federal governments -- looking ahead and determining how to keep your assets out of the government's hands is a fundamental part of building long-term wealth.
Personal Tax Planning: The Three Basic Steps
There are three items that make up the basics of personal tax planning:
- Reduce your adjusted gross income
- Increase your deductions
- Maximize your tax credits.
Reducing your adjusted gross income is effective in two ways: first, your tax burden is a percentage of your income, so the lower your income, the lower the burden -- but more importantly, if you can lower your adjustable gross income enough that you qualify for a lower tax bracket, you can reduce the percentage of your income that they take as well. The most common way to reduce adjusted gross income is to put money into a 401(k) or an IRA, which reduce your tax burden now and benefit you later in life -- it's like personal tax planning and retirement planning in one step.
After your adjusted gross income has been determined, you can further reduce your taxable income by claiming tax deductions. Itemized deductions can include health care, state and local taxes, mortgage interest, gifts to charity, personal property taxes (such as car registration fees), job-related expenses, investment-related expenses, and tax preparation fees. By itemizing your deductions, you can often significantly reduce your taxable income, though it does take a lot of foresight -- which is why they called "personal tax planning."
Tax credits come in two kinds: the Earned Income Credit, and everything else. The EIC is unique in that it applies to your tax burden as though you had paid that amount to the IRS -- meaning that it alone among tax credits can give you a tax refund if your income is small enough. All other tax credits are subtracted from the amount of taxes you owe to a minimum of zero; the most common among them are the credits for adopting a child, for taking college classes, and for planning your retirement.
Business Tax Planning: Consult an Attorney
To be blunt, there are enough different kinds of businesses and enough variation in tax laws between small businesses and major corporations that it's virtually impossible to write a coherent summary of even basic business tax planning practices.
We can offer this: call Schmidt Law Firm at 888-459-3077 and ask for a free consultation. For business or personal tax planning, our experienced lawyers will guide you through all of your options and help you with tax planning and any other form of asset protection.