Are you thinking about the ways to save your taxes strategically? Well, most people are busy about finding ways to save money on taxes but very few have been successful till today. The best way to arrange your financial affairs is none other than tax planning. In that case, the three best ways are by decreasing your income, increasing your deductions as well as take advantage of the tax credits. Even though these choices for tax planning strategies are not mutually exclusive but you can do all the three for getting the best results.
Reduce Taxable Income
It must be understood that the adjusted gross income is the main factor when it comes to determining your taxes. Well, the AGI is the starting number of your tax rate, for calculations as well as various tax credits depends on it. Also, you will not be able to qualify for certain tax credits if it is very high. Many people do not know that AGI also influences your financial life that is beyond the boundaries of taxation. Also, if you pay less in taxes then it is sure that you will earn less simultaneously. In other words, the more you earn, the higher your AGI will be as well as you will pay more in taxes.
Increase Your Tax Deductions
Once you have determined your AGI, your taxable income is what is left in the end. In such scenarios, you have a choice: Itemize your qualifying deductions or claim the standard deduction for filing status. However, there is no way of choosing both ways at the same time.
The itemized deductions include expenses for healthcare that are more than 10% of your AGI, the state and local taxes, property taxes and the personal property taxes. It is one of the best tax planning strategies in current times.
Benefit from the Tax Credits
What many do not understand that tax credits do not decrease your taxable earning but they are better than that. It is actually deducted from any tax debt which you end up owing to the IRS, once to take all the adjustments to tax deductions and income that you are entitled to.
The aforementioned facts are just the basic tricks to plan your tax and avoid all the tax-related hassles perfectly.