Taxes—A Little Planning Can Save A Lot

Taxes are an inevitable fact of life, but the amount of tax you pay does not have to be. Tax planning involves understanding all of the facts about tax laws, and making sure you are putting them to use (all in a fully legal way). The idea of good tax planning is to make sure you aren't paying more in taxes than the law requires.

Far from a simple task
Today's reality is that tax laws are complicated. For starters, much of the tax deducted from your paycheck (or that you pay in as a self-employed individual) isn't income tax in the technical sense, but so-called FICA tax — used to support the Social Security and Medicare programs.

What's more, the amount of actual income tax you pay does not equate to your tax bracket. Even if your income falls in the 27.5% tax bracket, the actual tax liability is something less than that, because a fair amount of income you earn is subject to a 10% or 15% tax rate.

Most important is that your taxes can be reduced by implementing helpful strategies.

Reducing your income taxes
There are a number of ways you can reduce your tax liability. Just a few of them include:

• Maximizing contributions to workplace retirement plans
• Shifting income from one tax year to the next
• Avoiding taxes on investments (possibly through tax-deferred investments)
• Making qualified charitable contributions that are deductible from taxes.

Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide financial, legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.