Learn what you must know about short term and long term individual tax planning if you desire to build wealth more efficiently…
In the current economy tax planning is critical as proper planning could allow you to avoid costly mistakes that many make without even realizing that they are making mistakes.
It is important that you have a conceptual understanding of what you can do now to help improve your tax position when you file your 2019 taxes in 2020.
However, a conceptual understanding is only the starting point.
You must put into action tax moves that can help you in the short term (12 months or less) and the long term (12 months or more) so that you can benefit optimally as you move along at the various stages in your life.
Ok, now is a great time to show you what you can possibly do to lighten your tax burden and also a time that the creator of TheWealthIncreaser.com could also take inventory and make positive moves as well “before” the 2019 tax year ends.
*Determine your current financial position
You must at this time determine where you are financially and that all starts with creating a budget or cash flow statement so that you can know your inflows and outflows of cash on a monthly basis.
By knowing what you take in and pay out you put yourself in a better position to make tax moves that you can benefit from for the current and future tax years.
Or another way of looking at it is–in order to know where you want to go–you must first know where you are at. By looking at your finances in advance of your tax planning you put yourself in position for “more” effective tax planning.
*Determine if you are maximizing your credit effort
Your credit or debt level must be at an acceptable level and there are moves that you can make to get to a level where you are maximizing your credit effort.
By maximizing your credit effort you put yourself in a much better position for short and long term tax planning.
Are you using mortgage interest, real estate taxes and other housing related deductions in a way that maximizes your tax position.
*Thoroughly analyze all areas of your finances including tax moves that you can make now to help in the short and long term
You must know how to review and effectively analyze your insurance, investments, taxes, education planning, estate planning/wills and retirement panning in a way that benefits you and your family the most.
You must look at the taxes that you pay to the IRS in an overall and comprehensive manner to see where and if improvements can be made.
Did you know that if you sell your personal residence you can receive tax-free treatment on the gain as long as several conditions are met?
In the following paragraphs you can learn about tax moves that you could possibly make to help lighten your tax burden now–and in your future!
Short Term Tax Moves
You can in the short term make charitable donations (the creator of TheWealthIncreaser.com will be donating a car this year as a result of reviewing tax moves at this time), possibly pay medical expenses in a way that allows you to maximize the 10% of AGI deduction for the 2019 tax year–and if you are self-employed–plan your growth in a manner that maximizes your tax position.
You may be able to adjust your w-4 to ensure that you don’t owe taxes or you get the tax refund or pay the amount (when you owe taxes) that you are comfortable with.
It is important that you know your state income tax withholding and sales tax payment position now–so that you can plan accordingly. If you are self-employed or make some of your income from self-employment you can plan more effectively and know in advance if you will have to pay estimated taxes that are normally due if you earn income during the year (January 15, April 15, June 17 and September 16–in 2019).
By knowing your current or expected income, your federal and state withholding and your tax projections for the 2019 tax year and beyond you can plan for success and win in your financial life.
If you invest “outside of your retirement accounts” during the year you can use capital losses to offset capital gains up to $3,000 per year and carry forward the rest.
You can plan your family size and educational ambitions with the current and possibly future tax advantages in mind.
Long Term Tax Moves
You can in the long term make retirement contributions in a wise manner by contributing at least to the match level of your employer, and even higher if your financial position allows you to do so.
You must know your federal and state withholding and tax projections for the 2020 tax year and beyond where possible.
If you own rental property or other depreciating assets you can accelerate or decelerate depreciation so that it will benefit you now—and/or in future years.
Be sure to deduct student loan interest and use education credits in a way that benefits you and your family the most!
Be sure to invest both inside and outside of your retirement accounts in a manner that provides a balance between what you need and your tax position.
If you invest “outside of your retirement accounts” during the year–you can use capital losses to offset capital gains up to $3,000 per year–and carry forward the excess into future year(s).
You can use a start up business or farm to possibly help offset your personal income taxes–if you file as a business or farm on your personal tax return.
If your income is too high or too low you can do short and/or long-term planning to correct that situation in a way that makes the tax system work for or with you—not against you!
The above strategies are proven ways that tax burdens have been lifted or eliminated and if you get a handle on your finances now and look out into the horizon you can discover more effective ways of minimizing your taxable income and lowering your taxes for the 2019 tax year and beyond.
Keep in mind that what is considered short or long term planning will depend on your individual and family situation as what might be short term planning for you could be long term planning for others—and vice-versa.
Also realize that all tax filing situations are unique so what might be effective for your neighbor or co-worker might not be effective for you.
And with the new tax law changes many middle class tax filers who were getting larger refunds in the past are seeing a difference–and in many cases a reduction.
Likewise many who got a smaller refund are seeing an increase, particularly younger families with children and household income under $100,000.
Almost all of those in the $400,000 and up categories have seen an increase in their refund or a decrease in the taxes that they pay.
Always try to maximize your retirement contributions (401k, 403(b), Federal TSP or other employer provided retirement plan) as you are allowed (2019) to contribute up to $19,000–and if age 50 plus an additional $6,000.
By doing so you can not only ensure that you have your retirement funds that allow you to enjoy retirement–you can also get a pre-tax benefit and lower your current taxable income–and possibly pay a lower tax rate during your retirement years, (your AGI will also be lower when you file your 2019 tax return–thus your taxable income will be lower–giving you both a long-term and short-term benefit)!
Even if you don’t have a retirement plan at your job you can still contribute to a ROTH or Traditional IRA up to $6,000 per year and $7,000 if age 50 plus (income thresholds apply).
If you are self employed you can contribute up to $56,000 ($62,000 if age 50 plus) by setting up a solo 401k by December 31st of this year–and you can contribute up until April 15, 2020–the filing deadline!
Keep in mind your contributions cannot exceed your self-employment income for the year.
Or you can set up a SEP-IRA which is limited to 20% of your self-employment income up to a maximum contribution of $56,000.
You must always know about marginal tax rates which has been reduced for many, however “more of their income” such as pension and social security is now possibly taxable–thereby increasing the amount of taxes they owe even though they are paying a lower marginal tax rate.
What you really must be aware of is your effective tax rate as that is the actual taxes that you will pay based on your unique filing position.
Always consider how tax moves at the “federal level” will affect your tax position at your “state and local level”–where applicable.
Your goal is to maximize your tax refund or minimize your tax liability in an overall (state and federal) manner–now–and in future tax years.
All the best toward your short and long term tax success…
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