Financial Planning For Tax Season

Get the most out of your next income tax return with these financial planning tax tips.

Planning Ahead

Looking ahead for your upcoming tax season will save you a lot of problems with filing your income taxes. Sound financial planning can keep the audits away while letting you become more focused on your present and future finances. While some people will wait until a few months before filing taxes to begin preparing, financial planning should take place all year round.

Minimize Taxable Income

You could lower your taxable income by staying home all day and not working. That would negate the need for financial planning. However, that would be good for retirement. There are ways that you can earn a good living and still minimize your taxable income.

Make Maximum Use of 401K Plans

In the world of financial planning tax tips, the use of the 401K plan ranks as the number one way to minimize your taxable income. The 401K contributions are very generous and can help you lower your taxable income substantially. You can contribute over $15,000 of pre-taxable income to your 401K plan each year. Since this is usually matched by your employer, you are both saving on your income taxes and getting a sizable retirement account in the process.

Deferring Your Income

Another way you can lower your taxable income each year is to defer part of your income to the upcoming year. This is most useful if you have made a sizable income from stocks and want to put of the capital gains tax. If you can offset this gain by a substantial loss in the upcoming year, that will also give you an added benefit in declaring deferred taxes.

Maximize Your Deductions

Not everyone is going to be able to take advantage of the 401K plans and deferring income because of capital gains. However, that doesn't mean that they do not need to good financial planning. Think about the ways that you can maximize the deductions you can take on your returns.

Tax Credits

There are several deductions that are tax credits you can use to earn a higher return come tax season. They are varied and have their own special qualifying requirements, but you should explore each one fully.

•Child Tax Credit - This tax credit allows you to deduct $500 for each qualifying child under the age of seventeen. This is disallowed for incomes over $110,000 for married couples and $75,000 for filing individually.

•Child Care Credit - If you are paying for child care for a dependent under the age of thirteen so you can work, then you can claim a child care credit. This is adjusted according to your adjusted gross income.

•Energy Saving Devices - If you install a new energy saving device, like solar panels or wind turbines, then you are eligible for a tax credit of up to $3,000.

Correct Withholding

At the onset of each new tax year, begin your financial planning tax organization by having the correct withholdings on your W4 form. It takes a few minutes to complete, but the trick is to find out where you should file so you are not withholding too much, or get into trouble by not withholding enough.