What Rancho Cucamonga residents need to know about personal tax planning

What in Rancho Cucamonga Area Residents Need to Know About Personal Tax Planning

Everyone’s tax situation is a little different, but there is one thing virtually everyone can agree on. You do not want to overpay and waste money or underpay and risk legal trouble. How can you find that perfect balance? The answer is with smart personal tax planning. The seasoned professionals at Whyte & Associates, Inc in Rancho Cucamonga are here to help.

What is tax planning?

Although commonly confused, tax planning and preparation are not the same. Personal tax planning refers to analyzing an individual’s situation and creating a strategy to minimize tax liability. It might include timing purchases or expenses to maximize tax breaks, understanding applicable tax credits, and other strategies. Personal tax preparation refers to gathering documents and information, filling out forms (on paper or virtually) and other details involved in filing the tax return.

Understanding the basic concepts in tax planning

Before you can devise a tax strategy, there are a few key concepts that you need to understand. These include:

  • Identify your tax bracket – Your tax rate depends on your income level and filing status. The first thing you need to do is identify what federal and state tax brackets apply to you.
  • Know the difference between credits and deductions – These concepts are often discussed together, and sometimes the terms are erroneously used interchangeably, but there is a big difference. A tax deduction lowers the total of your taxable income. A tax credit lowers the total of your actual tax bill.
  • Understand itemized vs standard deductions –In some cases, the total of applicable itemized deductions is lower than the standard deduction.
  • Sheltered income –Within limits, 401k deductions directly from your paycheck and IRA contributions are not taxable now. However, they are taxable upon withdrawal, so you need to look ahead to determine if this tactic makes sense for you.

Pro tip: get help from the pros

Tax laws are complex, but you do not have to devise your strategy alone. Call Whyte & Associates, Inc at (909) 575-0080.

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