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Tax Planning Basics: Put the inevitable on hold

by Brett Backues on November 30, 2011

 Two-and-one half centuries ago, Benjamin Franklin created job security for undertakers and accountants when he proclaimed, "In this world nothing can be said to be certain, except death and taxes.” 
Advances in medical science have prolonged the average lifespan, but the tax collector continues to have a strong grip on our day-to-day lives. Tax planning with your CPA should be held in the same high esteem as innovations that brought about the artificial heart and the cure for the common cold.
Tax planning for either business taxes or individual returns is more than just budgeting for the inevitable.  By now, most people know that the best—and most legal —way to reduce taxes is to reduce the amount of your taxable income. That can be done by either reducing the taxpayer’s adjusted gross income (AGI), boosting deductions, or both.  Proper tax planning can do that … and a lot more. 
Advanced tax planning begins with answering an extremely personal question: “Will I make more money next year?” Next you’ll need to determine how that answer will impact your tax situation. 
Have you ever considered the concept of actually paying MORE taxes this year? Crazy?? Just the idea could create anxiety in some people. But it might actually make sense.
Proper tax planning requires each person to forecast their own tax liability for the next year. And for the year after as well. The more we can accurately predict the future, the better prepared we will be to avoid the inevitable tax pitfalls on the road toward financial freedom.  Preparation for 2012 and beyond requires that we take action before the end of 2011.
Tax planning is a lot like a long vacation. You’ll need to map your route and make reservations before you can start to pack the suitcase. If you and your spouse (or business partner) make the decision to take control of your future taxes, begin your tax planning journey with a short visit into your past. Start with your latest pay stubs, bank receipts and mortgage statements. The future will come into focus once your current status becomes more clear. In tax terms, you’ll need to determine your current taxable income and existing deductions in order to avoid surprises in the future.
The time is NOW if you want to make any changes to your tax status for 2011. It may be December, but it’s not too late to make some significant adjustments to the status report you submit to the government before April 15th.
If you expect to be in another tax bracket (or become part of the 1%) next year, it might make sense to defer what you can write off this year. Crazy as it sounds, paying more taxes this year could save you money on your liabilities for next year. In other words, a penny spent this year could be a penny earned in the form of a tax refund next year.
That is sound advice that even Benjamin Franklin would like.