The subject of income taxes is one that most people would prefer to ignore. However, since income taxes are a significant expense for most taxpayers, you should come to grips with some basics about taxes:
Realize you can exert some degree of control over how much you pay in income taxes. While you do have to file and pay taxes every year, how much you pay depends on the tax strategies used. Discuss your tax situation with a tax professional, reviewing ways to help reduce your income tax bill.
Understand basic tax concepts. You don’t have to become a tax expert, but you should have a basic understanding of the tax laws so you recognize when you need assistance. Before entering into a major transaction, such as selling your home or securities, review the tax ramifications. For instance, you might find holding a security a little longer will result in gains being subject to capital gains tax rates rather than ordinary income tax rates.
Don’t make decisions solely for tax reasons. While you want to minimize the payment of income taxes, that is only one factor in most financial decisions. You should first make sure the transaction is economically beneficial, and then decide how to minimize the tax effects. For instance, perhaps you are considering selling a stock with gains. If you hold the stock for another month, that gain will be subject to capital gains tax rates. However, during that time, the stock’s value could go down. You need to decide whether the benefit of lower tax rates would offset the risk that the stock’s value could go down.
Keep good tax records. During the year, file any records with possible tax ramifications. That way, when it comes time to file your income tax return, all your tax records will be located in one place and you won’t forget a tax deduction.
Although paying taxes is not an enjoyable task, in ManagingMoney.com's Tax Center we have tried to make this process easier for you. In our Tax Center you can start a new tax return, amend an existing tax return, or download individual tax forms.
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