Never fall into the misconception that tax planning is only for wealthy individuals and owners of mega-successful businesses. Tax planning can benefit any person that wants to increase their income by minimizing their tax liability. Whether you are a U.S. resident or citizen, U.S. expatriate, or the owner of an international business, tax planning will likely benefit you or your business in more ways than one.
Certified public accountant and founder of US Tax Help Ted Kleinman provides tax planning services for US residents, US expatriates (expats) and foreign nationals. Ted has served clients in Bermuda, the Cayman Islands, Belgium, Canada, Australia, and several other countries. With over 30 years in personal and business income tax, CPA Ted Kleinman would be proud to help you with your unique tax planning needs. To schedule a consultation, call US Tax Help at (541) 923-0903, or contact us online.
Goals of Tax Planning
As mentioned above, the primary goal of tax planning is to minimize the effect of taxes on your income. There are several methods that you can use to accomplish this task. The following is a list of tax planning methods that can help you reduce your tax liability.
Decreasing Your Income
One important factor that you need to keep track of when planning your taxes is your adjusted gross income (AGI). Your AGI has an impact on your tax rate, your access to certain tax credits, and various other tax issues. The IRS defines AGI as your gross income minus any adjustments to your income. Your AGI will increase when your income increases and this will require you to contribute more money to taxes.
One way to reduce your AGI is by contributing money to a workplace retirement plan like a 401(k). Your contributions to the retirement plan will reduce your wages and subsequently reduce your tax bill. While this method is not applicable to every individual, US Tax Help can personally work with you to discover a plan that is unique to your particular situation.
Take Advantage of Your Tax Deductions
Tax deductions are another important part of tax planning. A deductible is an expense that can be subtracted from taxable income. Almost every person has at least one deductible expense, and if you are the owner of a corporation or other entity, you likely have several deductible expenses.
A deductible expense can be any of the following:
- Health care expenses
- State and local taxes
- Mortgage interest
- Donations to charity
- Job-related expenses from an employee and employer viewpoint
- Investment-related expenses
If you are a U.S. expat, you may have access to other deductions and exemptions that are not listed above. For example, under certain circumstances, an expat can be eligible for the foreign earned income exclusion. If you qualify, you can exclude up to $104,100 in 2018. The money used for this exclusion can be earned from a U.S. employer, a U.S. corporation that you own, a foreign employer, or an offshore corporation that you own. It is important to note that if you earned your wages or salary from a U.S. company, you and the employer are subject to payroll taxes. However, if the wages are received from a foreign corporation, you can be exempt from payroll taxes under certain circumstances.
Another deduction that is available for an expat is a foreign housing deduction. To qualify for this deduction, you must be a self-employed individual, a wage earner, or a salaried employee. This deduction can be claimed in addition to the foreign earned income exclusion and will increase your exempted income depending on how much of your housing expenses are deductible. The country you reside in and other sections of the tax code will play a role in determining the allowable housing deductions.
You should try to keep track of your deductible expenses throughout the year so that a tax preparer can help you take advantage of sections of the tax code that can reduce your tax liability. It is also important to note that President Trump is pushing for sweeping tax law changes and that could affect the manner in which you should approach a particular tax planning strategy. An experienced tax accountant can help you stay informed about new tax regulations that apply to you or your business.
Utilize Your Tax Credits
A tax credit is a certain amount of money that can be used to offset tax liability. Tax credits are different from deductible expenses because deductibles reduce taxable income, but they correlate with the taxpayer’s marginal tax rate that may increase or decrease depending on their income. Tax credits decrease taxes without taking tax rates into account.
You can use tax credits for college expenses, retirement savings, and even for the adoption of children. One of the most commonly used tax credits is the earned income credit (EIC). The EIC is popular because it can be credited to an account like a payment, kind of like a tax refund.
According to the IRS, if you paid taxes or accumulated taxes to a foreign country or U.S. possession and you are still subject to U.S. taxes, you may be entitled to a foreign tax credit. Typically, only war profits, income, and excess profits taxes may qualify for a foreign tax credit. Additionally, if you have an unused tax credit, it may be possible to use those credits in future tax years for up to five years.
This is not an exhaustive list. There are many other circumstances where you may want to utilize tax planning, like to minimize the effects of estate taxes.
Certified Public Accountant Here to Help with Your Tax Planning Needs
CPA Ted Kleinman of US Tax Help is prepared to assist you with any tax planning issues that you may have. Ted is dedicated to serving clients around the world and makes himself available for his clients 24 hours a day. To schedule a consultation, schedule an appointment, or feel to contact US Tax Help online.