When it comes to taxes, there’s a lot more each one of us should know about other than just how to file taxes in NY. But unless you’re an accountant, bookkeeper, or tax specialist, chances are you don’t know too much about the ins and outs of taxes. And that’s totally okay.
To help you stay compliant with taxes and possibly even reduce the taxes you owe, it’s advisable to turn to tax planning, especially in New York.
What is Tax Planning?
Tax planning is when you or a tax planning company in New York evaluates a financial plan in terms of taxes. Planning for taxes is done to ensure tax effectiveness. With careful tax planning, you can implement your financial plan’s various components while still paying as little tax as possible in New York. This can be especially useful for small businesses but still provides tremendous value to individuals as well.
The amount of taxes, timing of income, timing of purchases, and expenditure planning are just a few of the numerous variables that go into creating a tax plan by a New York tax planning attorney. Attorneys in New York who specialize in tax planning must also take into account their clients’ retirement plans and the instruments they have chosen. They may provide the greatest financial solution for their clients by accurately displaying the tax filing status and the deductions.
Tax planning basics in NY
There are a few things you can start reading about when venturing into tax planning. Here are just some tax planning basics in NY that you should make yourself aware of.
Know your tax bracket and how it works
The US tax system is progressive. Accordingly, those with greater taxable incomes pay more taxes, whilst those with lower taxable incomes pay less taxes. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Whichever bracket you fall under, you most likely won’t pay that rate on your entire income for two reasons:
- You can subtract tax deductions to determine your taxable income – so your taxable income won’t be the same as your salary
- You don’t just multiply your taxable income by your tax bracket. Instead, the government splits your taxable income into portions and taxes each portion at the corresponding rate.
Tax deductions vs. tax credits
Tax deductions and credits may be some of the best things to learn about tax planning. Both lower your tax liability, but they do it in very different ways. Knowing the difference can help you come up with some really good tax reduction solutions.
- Tax deductions are certain expenses that you are allowed to subtract from your taxable income. They reduce the amount that’s subject to tax.
- Even better are tax credits. They lower your tax obligation dollar for dollar. For instance, a $1,000 tax credit reduces the amount of tax you owe by $1,000.
Standard deduction vs. itemizing
Another decision to be made when planning your taxes is whether to itemize or take the standard deduction. This can make a massive difference in your tax bill.
Standard deduction is a one-time, flat-dollar tax deduction. It makes tax prep in New York a lot easier and quicker, which is why many choose this option versus itemizing. The amount of standard deduction is set by Congress and is usually adjusted annually. Which deduction you qualify for depends on your filing status: single, married filing jointly, married filing separately, or head of household.
On the other hand, you can choose to itemize your tax return instead of taking the standard deduction. This means taking all the individual tax deductions you qualify for one by one. Normally, this is chosen if your itemized deductions add up to more than the standard deduction. That’s why it’s key to track your deductions through the year. The downside however is that this makes the preparation of your taxes longer and more difficult.
Plan ahead with Melanin Tax
Be better prepared come Tax Day and start planning in advance. Determining how to best reduce your tax liability can be difficult if done by yourself, without any background in taxes or accounting. That’s why it’s highly advisable to seek the help of a tax planning company in New York like Melanin Tax.
Get top quality help from a New York tax planning attorney and find out the best way to plan and prep your tax return so you can pay the least amount of tax possible. Contact us today at lorraine@melanintax.com to book a free consultation. Plan ahead and stop paying more than you should!