What Does Tax Planning Involve?
Hudson, NH Resident Has Questions
Tax planning involves analyzing an individual or family’s current financial situation and making the necessary changes to ensure that they can pay the lowest amount in taxes for their circumstances. This may include manipulating the timing of income, purchases, investments including retirement plans and college savings. Through careful tax planning, you may be able to maintain or even reduce your tax bracket. This can make a significant difference to the amount of taxes that you wind up paying. Tax planning is completely legal, and a skilled tax professional can help you to best understand how to manage your finances.
A resident in Hudson was looking for advice on how to best prepare his finances to reduce his overall tax bill and sought the expertise of the team at Merrimack Tax Associates.
How Your Tax Bracket Will Affect Tax Planning
Your tax bracket plays a big role in tax planning. With the United States’ progressive tax system, the more money that you make the more tax percentage you will pay on the money towards taxes. While your entire income will not be taxed at the highest rate, a large chunk may be taken out of your income to pay additional taxes if you are pushed into a new tax bracket. Through tax planning you can work to move the money, whether in tax-deferred retirement savings accounts or by placing it in an FSA or HSA for future use.
Tax Planning with a Professional
While you can certainly take some action in tax planning yourself, a tax professional can help you to find the ways to best navigate the tax system. Whether investing in a tax-deferred retirement account, when your tax bracket will likely be much lower when the money is withdrawn, to taking advantage of tax deductions that may be available for you, a tax professional can help you better manage your financial situation.
Merrimack Tax Associates was able to assist with tax planning for this Hudson resident. Through investing some of his income in a retirement account and opening an HSA, he was able to significantly reduce the amount of his income that went toward taxes.