Tax planning is the process of acquiring the latest tax knowledge and taking the necessary steps to
reduce your income tax burden.
If you want to either reduce your taxes or increase your refund for your next return, then tax planning throughout the year is critical.
In addition, when planning for life changing events (marriage, home purchase, career change, etc.) you should also consider the possible tax implications.
The same is true for unplanned life changing events, they might have unplanned tax consequences.
Most people only think about taxes when is tax season, but the smart person takes action and makes adjustments during the year so when time season comes, he/she is not surprised with a tax bill, but rather has an idea of how much the tax liability or tax refund amount will be.
One way to start preparing for your taxes is to start adjusting your Federal Tax Withholding.
If you are the person who doesn’t like to pay the IRS when filing your taxes, then you should check your dependents in your W-4 with your employer.
Also, if you are a small business owner, sending quarterly estimated payments using the Form 1040-ES can help you mitigate your tax liability.
Tax planning also starts with understanding your tax bracket. You can’t really plan for the future if you don’t know where you are today.
So, the first tax planning tip is get a grip on what federal tax bracket you’re in.
Please take a look at our section about the Federal Tax Brackets and Tax Rates so you can understand how the progressive tax system works.