Personal Tax Planning

A lot of money is “lost” through taxes, and personal tax planning ensures that a person gets the most out of their finances while paying less tax. At the end of the day one will be sure of saving up quite some amount of money and hence securing their finances.  There are ways that one can plan their finances in order for them to minimize the amount of taxes that they are to pay. There are a few ways in which one can achieve this and they include the
reduction of one’s income, increasing deductions and making use of tax credits.

The reduction of income

One of the most important elements that will determine the taxes on one’s income is the Adjusted Gross income. This element plays a very important role in finance. One needs to realize that the higher one gets in terms of their income, the higher the tax they are to pay. With AGI it simply means that you need to add up all your income and subtract any
adjustments. The examples of the adjustments made to your income include making contributions towards retirement plans including the 401(k) and other similar plans. The adjustments will ensure that your income is lower hence lowering
your tax.

Increasing tax deductions

The best way to ensure that a person is increasing ones taxable deductions is by itemizing the deductions. These include the state taxes, mortgage interest and gifts to charity. Once you keep track of the itemized deductions it is important to compare the expenses to the standardized deduction. This will largely depend on the number of dependents one has. The more the dependents the higher the standard reduction one is expected to have. This is one of the strategies that used in reducing the amount of income that is subject to being taxed.

Tax Credits

Tax credits can work to reduce one’s taxes. Some of the people illegible for tax credits include college students who get tax credit for their first two years and for those that commit to taking a lifetime tax credit. The course one takes does not really matter. One can also reduce taxes by avoiding making withdrawals from their retirement plan. This will
ensure that the tax bill is lowered on your finances.

One can also increase their withholding which will keep of any owing. Through this one is to get a larger refund as compared to what would have been taken from their paycheck during the year.

Author’s Bio: Val Anne is an in-house writer from Franklin Debt Relief, a company specializing in programs for people with high credit card debt.

Which Is Best for My Small Business? a SEP IRA or SEP 401k?

A retirement plan for a small business can be tricky to find. You would want a plan that has low contribution minimums and affordable administration fees without sacrificing the benefits that your employees may receive. Of all retirement plans available for small business proprietors and self-employed individuals, the SEP IRA and SEP 401k plans are the top choices. What is a SEP IRA and what are the SEP IRA rules? A SEP 401k? What are their similarities and differences? Which is better for my business?

A SEP IRA is a retirement plan that allows the employer an easy method of contribution to the employee’s IRA. When to make contributions and how much will be contributed is all up to the employer. The limits of contribution are generous: $49,000 or 25% of the worker’s annual salary. The contribution to be made will be the lesser of the 2. An advantage of this plan is that it can include a big number of employees under the SEP.

Similar to a SEP IRA, the SEP 401k contributions are also employer discretionary. Contribution limits for this plan are: $15,500 maximum from employee’s salaries plus an additional 25% of the employee’s compensation as employer contributions. The catch is that this plan is only for the account older and his or her spouse, any employee cannot be part of the plan.

Of the two, the SEP 401k can potentially have a bigger contribution allowance. Say for example, an employee is receiving $100,000 a year. In a SEP IRA, maximum contribution possible would be 25% or $25,000. For a SEP 401k, that would be $15,500 taken from the salary, plus an employer contribution of 25% or $25,000. That would amount to a maximum possible contribution of $40,000fot the SEP 401k. The only drawback of the SEP 401k is that employees are not catered in the plan, so if you plan to expand your business and hire more to work from you, then the SEP IRA is the obvious choice.