Common Tax Planning Mistakes

Tax planning mistakes can cost you a lot of money. With some basic knowledge and planning, you can avoid costly tax errors. Here are some basic tips that help you to avoid tax planning mistakes.

1) Do not Ignore the Alternative Minimum Tax (AMT)
The AMT is a separate income tax system with its own difficult set of rules. Read our Tax Guide on the AMT

2) Charitable contributions
Take charitable contributions into your tax planning consideration. You may think the clothes you give to charity are not worth much, but if used properly giving clothes to charity can lower your tax bill significantly. You may be surprised when the final numbers come in. Please note that the new tax law now says you can’t deduct anything unless the clothes are in good condition or better. Keep track of out-of-pocket expenses you incur while working for a charity. An example might be the cost of stamps you buy for when mailing out letters for a fundraiser.
 
3) Maximize your 401K Contributions
Pre-Tax Income you contribute to your employer’s 401(k) plan not only reduces your taxable income dollar-for-dollar, but this money also grows tax deferred until you have to withdraw them in your golden years of retirement. This is one of best and easiest tax shelter employees can take advantage of. Best of all - if your employer matches contributions, such as the first three percent of the money you put in, you are getting free money.

4) Adjusting the Tax Withholdings When You Change Jobs
Switching to a new job is a perfect time to review your overall withholding settings. This is very important if you will earn more money from the new job. After you have adjusted your federal income tax withholdings, don’t forget about reviewing your state withholding allowances as well. This will avoid any unpleasant surprises at filing time.

December 23, 2007 | Filed Under Tax Advice

 

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