Personal Tax

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For personal income tax planning there are three basic ways to reduce your taxes, and each basic method might have several variations. You can reduce your income (by putting your money in other avenues or non taxed avenues), increase your deductions, and take advantage of tax credits.

Reduce your Income
US Tax Pros begins personal tax planning from your Adjusted Gross Income (AGI). AGI is a key element in determining your taxes. What goes into your adjusted gross income? AGI is your income from all sources minus any adjustments to your income.

The higher your total income, the higher your adjusted gross income. The more money you make, the more taxes you will pay.

The best way to reduce your income is to contribute money to a 401(k) or similar retirement plan at work. Your contribution reduces your wages, and lowers your tax bill.
You can also reduce your Adjusted Gross Income through adjustments to income i.e. contributions to a traditional IRA, student loan interest paid, alimony paid, and classroom related expenses.

Increase your Deductions
Taxable income is what's left over after you have reduced your AGI by your deductions and exemptions. Almost everyone can take a standard deduction, and some people are able to itemize their deductions.
Itemized deductions include expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses.

One key tax planning strategy is to keep track of your itemized expenses throughout the year using a spreadsheet or personal finance program. You can then quickly compare your itemized expenses with your standard deduction. You should always take the higher of your standard deduction or your itemized deduction.
Your standard deduction and personal exemptions depends on your filing status and how many dependents you have.

Taking Advantage of Tax Credits
Tax credits reduce your tax. There are tax credits for college expenses, for saving for retirement, and for adopting children.

Read 15704 times Last modified on Tuesday, 08 September 2015 08:19
More in this category: « Corporate Tax

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