Most taxpayers think about taxes once a year, when they are due. However, it is usually too late to change things at this time. In most cases, tax preparers are merely reporting a taxpayer's information when filing a tax return. This is after the fact information. Taxpayers can plan throughout the year to lower their tax bill by looking at a few areas.
How many exemptions are designated on the W4 if employed? If both spouses are working, have adjustments been made to ensure the taxpayer is having enough withheld? Having too many exemptions will drastically affect how much taxes are withheld. This is the most common problem I see when completing a tax return that results in owing taxes. The state of Utah has a 5 percent flat tax. When looking at how much is taken out of all income for state taxes it is easy to see if the year-to-date is falling in line with the 5 percent tax. Federal withholdings can be adjusted by completing the W4 correctly.
Is the taxpayer maximizing the employer's 401k or retirement plan? Contributing to a retirement plan not only keeps the taxable income lower, but keeps the income in the taxpayer's hands.
There are many ways to contribute to retirement plans that lower taxable income. Examining where your contributions go with a professional financial advisor can shift taxable income to nontaxable income. Most retirees don't review their retirement plans once the election to retire is made. This can cause other income such as social security to be taxed. It is never too late to get the most benefit out of a retirement plan.
If you owed taxes this year when you filed your 2012 return, it is important to start making changes now midway through the year. Waiting until you file next year's taxes will usually result in paying taxes again, which could result in a penalty for underpayment of taxes.
Keep more of your hard earned money in your hands by planning early. Tax planning not only involves a tax professional, but when paired with a professional financial advisor, your taxable income can be lower and save thousands in taxes.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.