Westlake Tax Plan Strategy To Know

Tax planning is the analysis and arrangements of your financial situation in order to maximize tax breaks and minimize tax liabilities. Tax rules can be complicated, but taking some time to know and use them for your benefit can change how much you end up paying in April. Here are some key Westlake tax plan and strategies to understand before you make your next money move.

Taking The Standard Deduction Vs. Itemizing

Deciding whether to itemize or take the standard deduction is a big part of tax planning, because the choice can make a huge difference in your tax bill.

What Is The Standard Deduction?

Basically, it is a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing. Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation. The standard deduction that you qualify for depends on your filing status

Tax Strategies To Shelter Income Or Cut Your Tax Bill

Deductions and credits are a great way to cut your tax bill, but there are other Westlake tax plan strategies that can help keep the IRS’ hands off your money. Here are some popular tax planning strategies.

Tweak your W-4

Put money in a 401(k)

Put money in an IRA

Fund your flexible spending account

Maximize Health Savings Accounts

Knowing What Tax Records To Keep

Keeping tax returns and the documents you used to complete them is critical if you are ever audited. Typically, the IRS has three years to decide whether to audit your return, so keep your records for at least that long. You also should hang onto tax records for three years if you file a claim for a credit or refund after you filed your original return. Keep records longer in certain cases, if any of these circumstances apply, the IRS has a longer limit on auditing you:

Six years - If you underreported your income by more than 25%.

Seven years -If you wrote off the loss from a worthless security.

Indefinitely - If you committed tax fraud or you didn’t file a tax return.

What does itemize mean?

Instead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one. Generally, people itemize if their itemized deductions add up to more than the standard deduction. A key part of their tax plan is to track their deductions through the year. The drawback to itemizing is that it takes longer to do your taxes, and you have to be able to prove you qualified for your deductions.

You use IRS Schedule A to claim your itemized deductions. Some tax strategies may make itemizing especially attractive. If you own a home, for example, your itemized deductions for mortgage interest and property taxes may easily add up to more than the standard deduction. That could save you money. You might be able to itemize on your state tax return even if you take the standard deduction on your federal return. Tax software or a good tax advisor can help you figure out which deductions you’re eligible for and whether they add up to more than the standard deduction.