Opportunities in a Taxing World
The 2011 tax season ended in mid-March, and many people filed their tax return copies away and pushed all thoughts of taxes away until the next filing season. rn.
I recognize that most people have a hard time putting the words opportunities and taxes in the same sentence, but that is where my edge as a tax professional best serves my clients.
There are a number of things that clients can do during the year that will make their future tax filings less stressful.
Anticipating taxes
Most people don’t realize that they can have federal taxes withheld from their social security benefits.
Some clients will elect to file and pay estimated payments in lieu or in addition to having taxes withheld.
Clients who don’t pay sufficient tax during the year will be penalized, and estimated payments are a way of avoiding these penalties.
Estimating
Estimated payments are exactly that; estimated payments.
Some people prefer to do this adopting the position that they prefer to have the use of their money for as long as possible. Others will pay the additional tax during the year feeling more comfortable knowing that they will not have to write a check at filing time.
Anticipating
I encourage clients to have taxes withheld whenever possible or make estimated payments.
Clients contemplating charitable contributions may want to make those contributions in years that they have income in a higher bracket thus lowering the tax at a higher rate versus a lower rate.
Know the math
Knowing when the tax bracket changes is critical for future planning purposes. For 2012, the federal tax bracket changes from 15 to 25% at $70,700. So, a client who has taxable income in higher bracket will get more “bang for their buck” when they make deductions that lower the income at the higher rate. For example, a $6,000 Traditional IRA deduction made by a taxpayer with income in the higher bracket will reap a tax savings of $1,500 while a taxpayer in the lower bracket will save only $900.
I strongly advocate with clients for a relationship that continues after the filing season. Life doesn’t stop just because the tax season ends.
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