The first step of good tax planning is good recordkeeping
Year-round tax planning is for everyone.
An important part of tax planning is recordkeeping. Gathering tax documents throughout the year and having an organized recordkeeping system can make it easier when it comes to filing a tax return or understanding a letter from the IRS.
Good records can help:
– Identify sources of income
– Keep track of expenses
– Prepare tax returns
– Support items reported on tax returns
In general, the IRS suggests that you should keep records for three years from the date you filed the tax return and develop a system that keeps all your important information together.
Records to keep include:
Reviewing eligibility for credits and deductions is also an important part of year-round tax planning
Tax credits and deductions can mean more money in your pocket. Most people only think about this when they file their tax return, but early planning can help make filing their 2021 tax return easier.
Here are a few facts about credits and deductions from the IRS that can help you with year-round tax planning:
- Taxable income is what’s left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction. In fact, most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their taxable income.
- As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Also, in some cases, taxpayers may even be required to itemize.
- Taxpayers can use the Interactive Tax Assistant to see what expenses they may be able to itemize on irs.gov website.
- Taxpayers can subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it.
- The American Rescue Plan made changes to several valuable tax credits including, the child and dependent tax credit, the childless earned income tax credit, the childless earned income tax credit and the child tax credit. It’s important for taxpayers to understand how these changes may affect the 2021 tax return.
Effective tax planning can help you to minimize your future tax liability and that is where we come in. We can help you keep your hard-earned money without paying a penny more in taxes than you’re legally required to do. And some of the biggest savings can come when we work together and plan ahead. Contact us today!