There are no great secrets where tax planning and tax cutting are concerned. The principles around which all tax-cutting strategies revolve can be reduced to five basics:
- Shifting income. Certain kinds of income (bonuses, dividends, and year-end payments, for example) can be shifted from one year to another in order to have the income fall where it will be taxed at lower
- Shifting deductions. As with income, certain deductible expenses can be paid in one year or the next in order to place them where the tax benefit will be greater.
- Deferring Putting your money into certain investments or making retirement plan contributions allows you to defer the tax on some income until a future year.
- Tax-deductible expenditures. Certain expenses may be tax-deductible if you meet specific requirements in the Tax
- Tax-sensitive Portfolios managed for taxes can include municipal bonds whose income is exempt from federal or state income tax (or both), and tax-managed mutual funds, which seek to minimize capital gains distributions.
Become aware of how tax law changes are affecting you and make adjustments necessary to lessen the impact of them on your earnings.
From: “5 Basic Tax Planning Techniques.” FMeX. 2020.
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