Tax planning is an essential part of personal financial management. Individual taxes come in various forms and therefore it is important for every individual to have a clear understanding of the subject so as to improve personal tax planning and management skills. Below are some important guidelines that should assist every individual taxpayer plan for his or her taxes better in the future.
1. Classifications of taxes
Many individuals are not knowledgeable about the different kinds of taxation systems today. There is a difference between Income, Local, State and Federal tax. Real estate tax involves the tax that is attached to real property. Taxes on investments include; dividends, passive stock income, bonds, capital gain and interest. Inheritance and the estate tax is yet another classification of tax that affects individuals. This is the state and federal tax that is charged to the inheritor of the estate. Gifts are also taxed. Entitlement tax includes; Corporate taxation, Social security, Medicare, sales from self-employment and Federal unemployment.
2. Seek the services of a tax consultant
Tax planning is a difficult process and many people would not be comfortable in handling it personally. This makes it important to identify a highly qualified tax consultant to handle the job. The tax advisers will prepare your taxes and also make certain decisions that can have an impact on your future. These professionals are knowledgeable of the subject matter and hence are in a position to provide you with taxation related advice. Tax advisers can also represent you during audit procedures that are a nightmare for many people. However, certain factors have to be kept in mind while selecting a tax consultant.
• Availability
• Interpersonal skills
• Proactive
• Well reputed in the industry
• Competent to handle the job
• The rates should be affordable
3. Tax preparation is both an art and a science
Mathematics is the science bit that is involved in the tax preparation process. Software programs and calculators are used to come up with these computations.
Tax Planning is also an art in the sense that some interpretations have to be made in relation to the figures stipulated in the financial statements. A proactive taxation consultant should be able to carry out adequate research on any circumstances that are out of the norm and provide you with a definite response.
4. Individual tax returns
As much as it is easier to use the services of a professional tax consultant, there are those who prefer to compute individual tax returns on their own. It is advisable to seek professional help so as to get peace of mind in regards to the tax computations presented.
5. Keep records
Ensure that you maintain proper records of all receipts and purchases that you have made during that particular financial year. Have a file and come up with different categories in relation to the purchases and income that you anticipate to make during the year. This makes it very simple to compute tax returns at the end of the year.
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