Did you do any tax planning for 2013? Probably not, you just finished your 2012 tax return and probably already received your refund. I bet it was big and you are using it to pay down debt, invest or just put it in savings. Some of you may even use it for fun things like a trip, shop or a few nice dinners. If you are not aware of the tax changes, you will probably pay too much in taxes next year too!
Tax planning is the analysis of a financial situation from a tax perspective to align financial goals with tax efficiency planning. What does that mean? Simply said, it is considering the tax implications on your financial plan in effort of minimizing your taxes. Let’s start with your tax refund. If you are receiving more than a few hundred dollars in a refund, you probably are not doing any tax planning.
This is not an exercise you do once a year and put it on autopilot. I suppose you could if you just earn $40,000 and rent an apartment! Let’s face it; you do not have to do any tax planning, if you can only use a standard deduction. If you are in this situation, you will probably remain there, if you do not do tax planning anyway. I know tax planning may be like a foreign language for most of you, but a financial plan or goals was probably a foreign language at one time too.
It is about this time, I have to admit I am a numbers guy! I love money not for what I can buy, but what I can do with it. There must be a word for this condition! Maybe it is Money Geek, Money Nerd or Money Maven? I figured out this incurable condition when I was just seven (7) years old. My mother declared me as money crazy. At the time, I thought she was putting me down, but I later embraced it as my chosen career. Ultimately, I became a Chief Financial Officer (CFO), Financial Consultant and entrepreneur.
There are financial planners and advisors that can help you put together a retirement plan, but I am not talking about that. I am looking more at the big picture where you figure out what you really want to do with your life. In some ways it is similar to an article I wrote called Do Your Resume Backwards. The best time to plan your resume is before you need one. The best time to do tax planning is before you have to pay your taxes. You know you give some thought about your investments or other things you do with your money to maximize your return.
Have I lost you yet? We all pay taxes and very few of us take an active role in reducing taxes although everyone complains about how much we pay in taxes. For the record, I do not complain about how much I pay in taxes! In fact, my goal is to pay more! Are you surprised? I do not want to make the IRS the recipient of my contributions or just want to pay more taxes. I want to earn more so I will have a higher tax liability. If I have a higher tax liability, I will pay proportionately less similar to Romney or Buffet. So don’t worry about me.
Sure you can rely on whatever tax program to find out what you should do or contact a good CPA. I prefer a CPA because I like to ask lots of questions. I suggest that you think about the tax implications of your decisions or actions during the year so you avoid surprises at tax time. Something as simple as changing your exemptions will affect the amount of tax refund you will receive after you file your tax return. If you do not plan, you will either receive a huge refund or have to pay a large tax bill. Either one is bad.
Tax planning can mean deferring income or expenses. Understanding your earnings and expenses when you make purchases or when you buy a home can mean huge tax differences. Should you only consider tax implications? No, of course not! You should always make your best decisions based on facts, but you could time your computer or other equipment replacements by the end of your tax year versus letting it just happen. If you just let things happen, you are a victim of negligence. If you fail to plan, you plan to fail!
Buying a home requires planning, you need a down payment, pre-qualify a mortgage and making sure you can handle the additional expenses of buying a home. Shouldn’t you include the tax implications too? It will change the amount of taxes you pay as well as change your expenses. You will probably go from a standard deduction to an itemized deduction. Business expenses, capital expenditures decisions in general require planning too. Are you planning to fail?
Most businesses have a business plan similar to your financial plan which is a detailed road map to your goals. It should include all of your expenditures and expansion plans. I am just suggesting that you think about the tax implications of your plans. I used tax planning to accelerate my expansion in income property. I utilized a 1031 exchange. to defer taxes on real estate (income property) to maximize my investment. It is just planning your decisions to maximize the tax benefits. Timing your expenses means lowering your tax bill.
If your goal is to pay as much taxes as possible regardless of the tax code, don’t plan! If you wish to minimize the taxes you pay or owe, do some tax planning and it is not too late for 2013. My CPA does year end tax planning in the Fall. I think you should have a plan for the entire year and discuss it with your CPA. This is the real value of a CPA, not just preparing a tax return. As many of you know, you can use a tax program that will prompt you with the typical questions and it will complete a tax return similar to any human being. Tax planning is a lot more interactive and you need to be able to ask questions and go through different scenarios. It is up to you! If your goal is to pay as much taxes as possible, don’t bother! Did you do any tax planning for 2013?
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Carnival of Retirement at Dividend Monk
Carnival of MoneyPros at Financial Conflict Coach
Yakezie Carnival at The Ultimate Juggle
Carn. of Financial Camaraderie at Freeat33
Y and T’s Weekend Ramblings at Young and Thrifty.ca
Did you do any tax planning for 2013?
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