Tax Planning Is For Everyone!
Whether you have modest income or you are a “high roller”, taxes are an integral part of your life. Through simple planning, you can substantially change the bottom line of your tax return. What can you do?
As your income increases, many of the credits which were available to you will begin to disappear. Keeping your ear to the ground when you hear of new tax law changes is another habit you should start to develop. But, just because you are “aware” of a new change doesn’t mean that it will save you money because many tax law changes require action.
For instance, the energy credits have caused quite a bit of confusion. This credit is considered a non-refundable credit. That means that it will only reduce your tax liability. It will not give you extra money. Many retirees felt that by updating house with certain energy star improvements (new windows, doors, insulation, furnace, hot water heater, etc); they would get $1,500 in their pockets (The credit is for 2009 and 2010 was 30% of the cost of improvement up to $1,500 in credits). However, if you have no taxable income, the energy credits won’t do anything for you. If you are in a situation where you have no taxable income, you may want to take out more from your pension plan or IRA. Any tax that you would have to pay from the distribution could be offset by the energy credit. The new Energy credit is 10% up to $500 in non-refundable credits.
Upper income taxpayers know full well the importance of tax planning. With income restrictions and phase outs, planning can help to reduce the tax bite. One of the best things a highly compensated person can do is to maximize their pension contributions. In this way, the income which is sheltered isn’t taxed until it is finally distributed in retirement years. A $20,000 contribution when you are in the 28% tax bracket Federal and 8% NY, results in $7200 in tax savings! In a two working family, with double contributions to a pension plan of $20,000 apiece, the combined savings are $14,400! This is also a great way to keep the adjusted gross income down to limit the phase out requirements on each section of the tax return.
EG Tax is here to help you with your tax plan. We offer “no charge” tax planning assistance to our clients. You can make an appointment by calling our corporate office at (716) 632-7886.