By Wade Michels
Lead writer

The 3 Pillars of Tax Planning

Would you like to be able to guess-timate your taxes? This handy guide is just what you’ve been waiting for.

The IRS uses a progressive tax, which is a fancy way of saying, as your income increases so will the amount of taxes you have to pay. That’s the bad news. The good news is you are entitled to numerous adjustments, deductions, and credits, which will decrease your taxable income, and lower the amount of taxes you owe. Yippee! As a taxpayer, you should be well aware of the three pillars of tax planning.

Reduce that AGI

Adjusted gross income is simply all the cash you’ve made minus any adjustments. I won't bore you with a list of those adjustments, they can be found on the first page of Form 1040 lines 23 through 37. Basically, if you want to reduce your tax liability you’ll have to reduce your income and with unemployment rates around 10%, there are lots of folks with reduced income.

In practical terms, one of the best ways to reduce that AGI is to contribute to a retirement vehicle. And, no I’m not talking about a yacht, you’re not ready to sail the big seas anyway. I’m talking about a Traditional IRA or an employee sponsored 401K plan. For every dollar you put into one of these bad boys you will reduce your AGI dollar for dollar. Sound sweet? Well it is.

Max those Deductions

Unless you’re still living with Mom, you’re eligible for a standard deduction. If you’re single that works out to be $5,800 smackaroos. If you’re married, it doubles to $11,600. And if you don't fit into one of those two groups, chances are there’s a deduction that’s just right for you.

Filing Status	Standard Deduction
Single.	$5,800
Married Filing Jointly	$11,600
Married Filing Separately	$5,800
Head of Household	$8,500
Qualifying Widow(er)	$11,600

Own a home? You could itemize the interest. Have a car? Paying personal property tax works in your favor. If all your itemized deductions are worth more than your standard deductions, enter it on your tax forms and tell Uncle Sam to show you the money. Oh yeah, and having dependents will give you some pretty sweet tax breaks, though most of us wouldn’t want to have kids just for that purpose.

Hmm Credits

Ok, so we’ve gotten our taxable income down as low as we can (without cheating), is there anything left to do? Heck ya! There are a bunch of tax credits available for those savvy enough to look for them. For example, there’s a 30% of cost (up to $500 credit) for those who’ve put in new windows, upgraded ancient appliances to more energy efficient models, and even for putting new insulation your attic. You’d be surprised how fast all these expenses add up.

Want to take a few classes and expand your knowledge base? Go ahead, there’s a lifetime learning credit with your name on it. Worried about them not applying to your career? Well don’t because they don’t have too.

Fin

With a little bit of preparation it’s easy to hang onto your hard earned coin. Use it for a vacation, or some home improvement, even save or invest it-- ugh perish the thought. Whatever you do, don’t let Uncle Sam keep it, remember, this is your money, - you’ve earned it.

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