| Tax Planning
Tax planning and tax-cutting has somewhat of a mysterious aura about
it. I'll attempt to explain it in plain English. There are actually
several basic tax-cutting strategies, and most plans involve one or a
combination of them. In a nutshell, the strategies are:
- Splitting income among several family members or legal
entities in order to get more of the income taxed in lower brackets.
- Shifting income from one year to another in order to have it
fall where it will be taxed at the lower rate.
- Shifting deductions from one year to another to place them
where the tax benefit will be greater.
- Deferring tax liability through certain investment choices
and through pension/retirement plan contributions.
- Structuring your affairs to obtain a tax deduction for some
expenses paid for things you enjoy - a vacation home for example.
- Recharacterizing income from ordinary income taxed at your
highest marginal rate to capital gains taxed at substantially
lower rates.
- Investing your money to produce income that is exempt from
either federal or state income tax or both.
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Professional Help
Today's tax laws are so complicated that unless your financial affairs
are extremely simple, chances are you will benefit from at least
occasional help from a tax professional. It is too easy to overlook
deductions and credits to which you are entitled if you prepare only one
return a year. Even the use of computer software is no substitute
for the assistance of a seasoned tax professional.
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