Three Main Strategies for Cutting Your Tax
The goal of tax planning is to arrange your financial affairs in order to minimize your taxes. Here are three tax-cutting strategies that you could make:
1. Earn as much nontaxable income as possible. You have more control over business and investment income than any other income you earn. You can draw income from your business in the form of tax-deferred and tax-free benefits. And you can grow and draw income from your portfolio in all sorts of tax-advantaged ways. This system concentrates on these choices.
2. Make the most of adjustments to income, deductions, and credits. Adjustments to income and deductions save by cutting your taxable income. Tax credits save by cutting your actual tax. There's no magic to using them, other than knowing what you can deduct. This plan helps you exploit more of these opportunities.
3. Shift income to other taxpayers and other tax years. Shifting income from today to tomorrow cuts today’s tax—plus it squeezes another day’s use out of today’s tax dollar. And shifting income from you to a lower-bracket taxpayer, such as a retired parent or child, saves even more. Many of this plan’s strategies involve these sorts of moves.