Tax Planning Strategies Are Futile Without Understanding Your Tax Bracket

Businesses of every size and verticals need to invest a little bit of time and effort in efficient tax planning strategies. You are making money and you want to be able to spend it with total peace of mind. Your accountants are constantly working towards projecting your potential incomes over the next six month period. They are also calculating the corresponding tax that you will have to pay whenever the due date is upon you. But you are obviously quite hesitant to shell out that much of money, especially when your business has just taken off. Your tax liabilities are not something that can be avoided. But with the right tax planning strategies you can definitely reduce the tax burden that you might have to bear in the near future.

Tax Planning As Understood By Everyone

To put it in layman terms, tax planning is basically just a way to efficiently forecast your tax liability. You need to find out the circumstances and do a lot of research that can help you reduce your tax burden. Tax planning involves a lot of analysis from a tax perspective of your particular business financial situation. It should not be confused with tax avoidance. Remember, tax avoidance is an unethical practice that comprises using tax laws to avoid paying tax to the government. You are investing in the right tax planning strategy when your end goal is to reduce your payable tax amount in a legal manner, all the while using the tax laws prescribed by the government.

Understanding Your Tax Bracket - This Is Where Your Tax Planning Strategy Begins

You cannot plan for your taxes or even begin to reduce your payable tax before you understand what tax bracket you belong to. The very first strategy that you should work upon is to get a grip on the federal tax bracket you fall within. In the United States we have a progressive tax system. This means that if you have a higher taxable income, you will have to pay a higher tax rate. Similarly, people with a lower taxable income are subject to a much lower tax rate. Some of the most common tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Reasons That You Will Not End Up Paying The Exact Percentage Listed Above On Your Income Regardless Of What Income Bracket You Belong To

· Tax Deductions

Everyone is entitled to the most basic tax deductions in order to determine their taxable income. This is why your taxable income is not the same as your entire income or salary.

· Income Division

Any individual who intends to pay taxes will not have to pay them on the basis of the tax percentage applicable to them. The government instead divides their taxable income into separate chunks and then corresponding tax rate is applied to each one of those parts to calculate the final tax.

So remember, before you begin formulating any tax planning strategies with your accountant; understand your income tax bracket first.

 


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