Fawcett Tax Planning
Fawcett Tax & Accounting Services is here for your Tax Planning needs. Tax planning is a difficult task for anyone. Think of tax planning as a financial compass and our business as trying to point you north. If conditions change, you’ll have real-time analysis of multiple scenarios and their impact on cash-flow, profitability, and headcount. As a result of working with us, you’ll save time, money, and always have current financial information at your fingertips.
Tax Planning Details
Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor's financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
What to understand about tax planning? Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.
Special Tax Planning Considerations
Saving via a retirement plan is a popular way to efficiently reduce taxes. Contributing money to a traditional IRA can minimize gross income by the amount contributed. For 2021 and 2022, if meeting all qualifications, a filer under age 50 can contribute a maximum of $6,000 to their IRA and $7,000 if age 50 or older.
For example, if a 52-year-old male with an annual income of $50,000 who made a $7,000 contribution to a traditional IRA has an adjusted gross income of $43,000, the $7,000 contribution would grow tax-deferred until retirement.
There are several other retirement plans that an individual may use to help reduce tax liability. 401(k) plans are popular with larger companies that have many employees. Participants in the plan can defer income from their paycheck directly into the company’s 401(k) plan. The greatest difference is that the contribution limit dollar amount is much higher than that of an IRA.
Using the same example as above, the 52-year-old could contribute up to $26,000 into their 401(k). For 2021, if under age 50, the salary contribution can be up to $19,500 ($20,500 for 2022), or up to $26,000 for 2021 ($27,000 for 2022) if age 50 or older due to the allowed additional $6,500 catch-up contribution.
