5 Tax Planning Tips for Individuals
Tax planning is the process of taking steps to reduce your tax liability. There are many different ways to do tax planning, and the best strategies for you will depend on your individual circumstances. However, there are some general tips that can help everyone save money on taxes.
Here are 5 tax planning tips for individuals:
Use your retirement contributions. Retirement contributions are either tax-deductible or Roth tax free growth. Which means you can reduce your taxable income by contributing to a retirement plan. The most common types of retirement plans are 401(k)s, IRAs, and HSAs.
Take advantage of tax credits and deductions. There are many different tax credits and deductions available. Be sure to take advantage of the ones that you qualify for. Some common tax deductions include, Health Savings Account contributions, 401(k) contributions, tax loss harvesting, mortgage interest deduction, the charitable deduction, and the medical expense deduction.
Invest in tax-advantaged assets. There are many different types of tax-advantaged assets, such as HSAs, 401(k)s, and IRAs. Investing in these assets can help you save money on taxes. For example, HSAs are health savings accounts that allow you to save money on medical expenses. 401(k)s are retirement plans that allow you to save money on taxes either now or in retirement. Traditional IRAs are individual retirement accounts that allow you to save on taxes now but pay taxes in retirement. Depending on which you choose to use it will help save money on taxes either now or in retirement. Roth IRAs allow tax free growth on your investments. There are many different options to choose from.
Plan for your state and local taxes. Don't forget about your state and local taxes when you are doing your tax planning. These taxes can add up, so be sure to factor them into your plan. For example, some states have income taxes, while others do not. Some states have property taxes, while others do not.
Review your past year's tax return. This will help you identify any areas where you can improve your tax planning for the coming year. For example, you may have missed some deductions or credits that you were eligible for. You may also want to consider making changes to your withholding so that you don't have to pay a large amount of taxes at the end of the year.
By following these tips, you can save money on taxes and improve your financial health. However, it is important to remember that tax laws are complex and constantly changing. It is always a good idea to consult with a tax advisor to get personalized advice.
*All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.