It’s no secret that taxes can be complicated. Even if you’re relatively comfortable with numbers and have a straightforward financial situation, it’s easy to make mistakes when preparing your taxes. And those mistakes can be costly. The good news is that you don’t have to go it alone. Hiring a professional tax preparer can save you time and money. In fact, according to the US government Accountability Office, 77% of taxpayers who hire a professional tax preparer report having benefited from the experience.
Professional tax preparation services are familiar with the latest changes in tax law and can help you take advantage of deductions and credits that you might otherwise miss. They can also help you avoid errors that could trigger an audit. So if you’re feeling overwhelmed by taxes, consider hiring a professional tax preparer. It could be the best decision you make all year.
Taxes can be a confusing and frustrating topic, especially if you’re self-employed or have a complex financial situation. However, understanding your effective tax rate is important in order to make sure you’re paying the right amount of taxes. Your effective tax rate is the percentage of your income that you actually pay in taxes, after taking into account all deductions and credits.
How to Calculate Your Effective Tax Rate
Your taxable income is the gross income with fewer deductions of $12,550 if single and $25,100 if married filing jointly; any tax adjustments or itemized tax deductions. You can locate this amount on Form 1040, line 15.
Effective Tax Rate = Total Tax ÷ Total Taxable Income
One of the most important pieces of information for any taxpayer is their average tax rate. This number tells you how much of your income is going towards taxes, and can be used to help you calculate your taxes owed or refund due. There are a few different ways to calculate your average tax rate, but the most straightforward method is to divide your total taxes paid by your total income. For example, if you earned $50,000 in a year and paid $5,000 in taxes, your average tax rate would be 10%. It’s important to keep in mind that your average tax rate is just that – an average. Your marginal tax rate – the rate you pay on your last dollar of income – may be higher or lower than this number. However, your average tax rate can still give you a good idea of your overall tax burden.
How to Reduce Your Tax Liability
Tax deductions and credits can add up to significant savings. While tax filing is inevitable, most people do not want to see a huge portion of their earnings to any level of government.
Fortunately, you can legally reduce the amount you pay to the taxman every year through credits, deductions, and advanced investment strategies. Some tax savings are only accessible to the self-employed and small business owners, while others are available to everyone.
Changing Income Tax Considerations
This tax code, however, can and does change frequently; here’s a look at how to pay less tax applying the current law.
Contribute to a Retirement Account
Contributions to traditional IRA accounts and 401k are one of the easiest ways to reduce your taxable income. And it’s a strategy available to almost everyone. These contributions are deductible from your taxable income and reduce the federal tax you owe. In addition, the funds grow tax-free until retirement.
Open a Health Savings Account
A high-deductible medical plan can save you money on taxes by allowing you to contribute to a health savings account (HSA). The contributions you make to your HSA can lower your taxable income, and you can withdraw the funds tax-free for qualified medical expenses. Any balance that is left in your HSA at the end of the year will roll over, so you can continue to grow your savings. A health savings account is a great way to save for future medical expenses, and it can also help you reduce your taxes.
Make Charitable Donations
Almost everyone has heard of charitable deductions on taxes, but not everyone understands how they work. There are four main ways that you can deduct charitable contributions: payroll deductions, cash, checks, and goods and clothing donations. Payroll deductions are automatically deducted from your paycheck and given to the charity of your choice. Cash donations are just what they sound like- giving cash to a qualified charity. Checks are also pretty self explanatory- write a check to a qualified charity. And finally, goods and clothing donations are when you donate items like clothes, furniture, or books to a qualified charity. All of these methods are deductible, so choose the one that works best for you!
Contact TPI Group and Simplify Your Tax Situation
Are you feeling overwhelmed by your taxes? You’re not alone.
Every year, millions of Americans struggle to navigate the complex tax code. Fortunately, there is help available. At TPI Group, our team of experienced tax professionals can help you get the most out of your taxes. We specialize in tax minimization strategies for both personal and business taxes, and we can help you take advantage of all the deductions and credits you’re entitled to.
We know the tax code inside and out, and we’re here to help you. Contact us to book your free tax planning consultation!