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As the title states Plan your taxes in advance.
Tax brackets vary for each and every person. Foresight into the future tax bracket you will be in could save you thousands.
Pay attention you the current year filing rates.
The most typical variance for most citizens last year is the first range where the tax percentage changes by 10-15%
Filing Single:
Notice the line 35,350 that is a salary that many come close to. Being over that makes a huge difference in the tax levels that you would pay. The flat amount to start is horrendous difference. At or above 35,350 the difference flat is $3997.50 So Because you make even 1 single dollar more than that one income line you owe more for taxes. (This doesn't even include the percentage change either from 15% to 25%!)
So what does this mean? What if you notice by June you expect to make 40,000 gross? Even 45,000 gross?
Do you have an IRA? 401k? Options? If you aren't already contributing to these then figure out how much you would need to get your eligible income below the mark.
Lets use the 40,000 as a flat figure which is a very common average salary. Your tax expected would be 14,867.50. That is a chunk of change for being single without dependents.
IF you were to contribute to a 401k or IRA 5,000 Dollars. You would be below the eligible income mark of 35,350 and this would reduce your taxes greatly.
By putting 5,000 into your own account for YOU. The difference shows here:
35,000 40,000
x.15 x.25
+870 +4,867.50
_____________________
6120 14,867.50
Difference of 8,747.50 By doing this simple Pre Tax retirement incentive
You will have 5000 into your IRA and you will have 3747.50 less in taxes taken. I would say that is a step ahead in the right direction.
This is one measure that is to be considered. There are other lines in the documents that you can see the brackets go up.
Married filing jointly is a higher line of 70,700 But it is still to be planned because you both can contribute to alleviate that Bracket if you are nearby or close. The flat difference is 7,995! Contributing to the pre tax accounts strategically will greatly reduce this risk of stepping over that line into that bracket and you KEEP the savings to yourself instead of it going to the government.
Head of Household: Same deal but in the middle more. 47,350 is another common line. And look at the dramatic difference. 5242.50 dollars more automatically. PLUS 10% higher added to that.
So in the beginning of the year, Plan on what you need to do to avoid these taxes. You may say you need the money, but problem is the government is already going to take it if you don't plan ahead and figure your taxes out the best means for you. Look at your projected income make sure if you can avoid the brackets and are close to them that you avoid paying the higher bracket that CAN be avoided and you hold onto that money. I would much rather pay myself for retirement then to pay it to the IRS when it is a perfectly legal means to save and defer the taxes on the income.
Do your math, a little bit of planning could go a very long ways towards keeping your money in your hands.
Tax brackets vary for each and every person. Foresight into the future tax bracket you will be in could save you thousands.
Pay attention you the current year filing rates.
The most typical variance for most citizens last year is the first range where the tax percentage changes by 10-15%
Filing Single:
Notice the line 35,350 that is a salary that many come close to. Being over that makes a huge difference in the tax levels that you would pay. The flat amount to start is horrendous difference. At or above 35,350 the difference flat is $3997.50 So Because you make even 1 single dollar more than that one income line you owe more for taxes. (This doesn't even include the percentage change either from 15% to 25%!)
So what does this mean? What if you notice by June you expect to make 40,000 gross? Even 45,000 gross?
Do you have an IRA? 401k? Options? If you aren't already contributing to these then figure out how much you would need to get your eligible income below the mark.
Lets use the 40,000 as a flat figure which is a very common average salary. Your tax expected would be 14,867.50. That is a chunk of change for being single without dependents.
IF you were to contribute to a 401k or IRA 5,000 Dollars. You would be below the eligible income mark of 35,350 and this would reduce your taxes greatly.
By putting 5,000 into your own account for YOU. The difference shows here:
35,000 40,000
x.15 x.25
+870 +4,867.50
_____________________
6120 14,867.50
Difference of 8,747.50 By doing this simple Pre Tax retirement incentive
You will have 5000 into your IRA and you will have 3747.50 less in taxes taken. I would say that is a step ahead in the right direction.
This is one measure that is to be considered. There are other lines in the documents that you can see the brackets go up.
Married filing jointly is a higher line of 70,700 But it is still to be planned because you both can contribute to alleviate that Bracket if you are nearby or close. The flat difference is 7,995! Contributing to the pre tax accounts strategically will greatly reduce this risk of stepping over that line into that bracket and you KEEP the savings to yourself instead of it going to the government.
Head of Household: Same deal but in the middle more. 47,350 is another common line. And look at the dramatic difference. 5242.50 dollars more automatically. PLUS 10% higher added to that.
So in the beginning of the year, Plan on what you need to do to avoid these taxes. You may say you need the money, but problem is the government is already going to take it if you don't plan ahead and figure your taxes out the best means for you. Look at your projected income make sure if you can avoid the brackets and are close to them that you avoid paying the higher bracket that CAN be avoided and you hold onto that money. I would much rather pay myself for retirement then to pay it to the IRS when it is a perfectly legal means to save and defer the taxes on the income.
Do your math, a little bit of planning could go a very long ways towards keeping your money in your hands.