Tax is a necessity. Just like you wouldn’t want to overspend on other essentials like clothing and food, you don’t want to pay more tax than you have to. The key to frugal shopping is identifying what you need and having a spending plan.
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The same goes for reducing your tax bill. In this article, you’ll find five smart tax planning strategies for African Americans to consider.
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What is Tax Planning?
Tax planning means examining a financial plan or situation to ensure that all moving parts work together to allow you to pay the lowest tax possible. A tax plan that reduces the amount you pay in tax is called tax efficient. Tax planning needs to be a vital part of African Americans financial plans.
On Amazon, there are books that have covered Tax planning very well. You can get them if you would love to learn more about tax planning.
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Top 5 Tax Planning Strategies for African Americans to Consider
The saying “Watch the pennies and the dollars will take care of themselves” applies heavily to tax planning strategies for African Americans. Black people who aren’t making enough money can take advantage of tax-saving opportunities. Here are the top five tax planning strategies for African Americans to consider.
1. Business Restructuring
Different business structures pay different tax rates. If you have witnessed significant growth as a sole trader or partnership, then it may benefit your business to restructure to a company for tax benefits. If you’re not certain about which structure is perfect for your business, we recommend talking to an advisor to ensure that you pick the right structure.
2. Time Your Purchase
You can save money on your business tax by timing your expenses and income at the end of the year to minimize your taxable income and maximize your deductions. But before you begin to think about timing your expenses and income, you need to figure out when you want to reduce your business income for tax purposes.
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3. Use Proper Expense Management
When it comes to reducing unnecessary expenses and increasing deductions, expense management is important. When you understand the difference between deductible vs. non-deductible expenses and keep correct records, you can benefit from available tax deductions.
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4. Use Tax Planning Resources and Software
Many tax planning resources and tools are available to help businesses and individuals in tax planning. With tax planning software, you can easily generate reports, spot tax-saving opportunities, and track expenses.
TaxAct, TurboTax, and H&R Block are a few of the popular tax planning software people use. On the other hand, the Internal Revenue Service (IRS) provides resources and publications to help individuals and businesses with tax planning.
Tax guides, the IRS website, free tax workshops and webinars, and publications are all part of these resources. So, ensure to take advantage of them.
5. Cut Down Your Taxable With Retirement Contributions
Making retirement contributions is a great way to cut down your taxable income and save for retirement. When you make retirement contributions, you protect that part of your revenue from tax.
The reason is that you’re only taxed on the income left after retirement contributions deductions. For instance, if you earn $45k a year and contribute $4k, you’ll get taxed based on $41k and not $45k.
To effectively plan your business or personal tax, you need to understand the basics of taxation, spot tax-saving opportunities, and use the right tax planning strategies. By implementing the five strategies shared here, you’ll be able to reduce your tax bills.
Many guides and books that teach the best tax planning strategies are available on Amazon.
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