Tax Financial Planning

Long-range tax financial planning involves strategically placing liquid assets where monies can earn the greatest return. Investing in mutual funds, stocks and bonds, purchasing real estate, and saving for retirement or college are all smart moves for consumers who want to minimize tax obligations over the long haul. Most individuals spend a lifetime earning as much money as possible, but few are aware of the legal means of protecting assets and keeping the government from dipping into savings. There are three major ways to minimize taxes: reduce net taxable income, investigate and take advantage of all allowable credits, and increase deductions by itemizing every allowable expense.

Thousands of taxpayers fail to take more than standard deductions simply because of a lack of knowledge about federal and state credits. A prime example is the Earned Income Tax Credit (EITC) which helps taxpayers without children reduce taxable income. Military personnel and ministers also qualify for EITC. The Child Tax Credit makes parenting just a little more appealing and provides a credit of up to $1,000 for qualifying child. Grandparents under the age of 65, foster parents, siblings raising younger brothers and sisters, and biological Moms and Dads can all reduce taxable income by taking advantage of the Child Tax Credit. While "rendering unto Caesar the things that are Caesar's" is commendable, protecting personal finances through tax financial planning is not only legal, but also wise and prudent. "For wisdom is better than rubies; and all the things that may be desired are not to be compared to it. I wisdom dwell with prudence, and find out knowledge of witty inventions" (Proverbs 8:11-12).

Younger workers who want to enjoy the golden years without taking a part time job at a fastfood restaurant can begin tax financial planning by saving money in an employer-provided 401k, IRA, or Roth IRA. Individual Retirement Accounts allow individuals to stash away up to $5,000 per year (until 2011), tax-free, for a nice little nest egg. Tax-deferred retirement savings are only taxable after the account holder reaches age 59 1/2, or if monies ara withdrawn early, in which case savers are assessed a penalty. In spite of the housing market crisis, buying and selling real estate is still a good way to keep the government from excessively taxing assets. Smart sellers can utilize prudent financial planning to lower capital gains taxe on home sales and spread payments out over several years after the sale.

Short-term tax financial planning includes increasing the number of dependents on 9-to-5 employment so that more money is taken out during the year. At the end of the year, individuals who increase dependents allowed by law will usually wind up getting a refund or owing much less to the government than those who claim fewer dependents. Of course, the Internal Revenue Service may take a closer look at a single man claiming an excessive number of dependents that are not in residence at least six months out of the year.

While most taxpayers dread pulling out records and receipts to prepare returns, there is a benefit to itemizing as many deductions as possible. The more deductions claimed, the less net taxable income to report. Self-employed individuals and those with home businesses frequently neglect to take deductions for gasoline, travel and meals. Deductions for a home office, no matter how small, can also reduce net taxable income. Simply measure the in-home office, figure the percentage of the home's total square footage, and take a deduction equal to that percentage of all utilities, mortgage, and other household expenses.

Big spenders who want to shield liquid assets from Uncle Sam should look into offshore tax planning. Taxpayers usually pay revenue on capital assets owned in the country in which they reside; but the rich and famous have discovered a way to minimize and eliminate paying revenue by investing money into offshore properties. Exotic islands may be the playground for the wealthy, but they are also prime low tax jurisdictions. The islands of Barbados, the Turks, and Caicos; Switzerland; Canada; and China all offer investors seeking to minimize or reduce taxes a place to dispose of wealth which would normally be heavily assessed in the U.S. The savings are so substantial that corporations routinely move operations offshore to shield assets.

International or offshore tax planning is perfectly legal; however investors have to do some homework to assess whether foreign locations are suitable for long-term asset protection. Offshore financial advisors can help U.S. corporations select the best sites for international business operations. International holdings are safer in locales with stable political governments that allow Americans and other foreigners to purchase and own land or capital assets. U.S. investors should ascertain whether the locale is easily accessible by public or private airlines and establish a good relationship with offshore bankers and financial institutions. The U.S. dollar value is also a prime consideration. Even though offshore tax planning can provide opportunities to amass and protect large amounts of capital assets, properties are only as valuable as the foreign locale's monetary exchange.

Individuals and entrepreneurs seeking to keep as much annual earnings as possible should seek the advice of financial planning professionals who can suggest a myriad of ways to protect assets. It is never too early to begin long-range planning; and the sooner individuals begin securing a financial future, the sooner the benefits of sound fiscal management can be enjoyed. Businesses desiring to avoid paying excessive revenue should include offshore tax planning as part of a sound fiscal strategy. A small percentage of assets placed in a low tax jurisdiction can net excellent returns without incurring liability.

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