Paying attention to taxes when planning your finances

Taxes are a fact of life, and while no one likes to pay more than their fair share, taxes are necessary to keeping the services we all rely on up and running. That having been said, there is no reason why you cannot plan your finances to reduce the tax burden you have to pay.

The time to plan for a reduction in your taxes for next year, however, is this year. The steps you take at the beginning of every year will have a profound impact on the taxes you must pay in the year to come.

One of the best ways to reduce your income taxes going forward is to contribute to a qualified retirement savings plan. If you work for a for profit company, you may have a 401(k) plan available to you. Those who work for nonprofit companies or government agencies may have access to a 403(b) plan. Contributing to either plan is a good way to reduce your current tax burden while preparing for the future. When you add the fact that many employers match the contributions made by their workers, it is easy to see why 401(k) and 403(b) plans are so popular.

Even those who are not covered by one of these employer sponsored plans can save for retirement and enjoy tax savings as a result. Contributing to an Individual Retirement Plan (IRA) can reduce your taxes if you are qualified. For those whose income falls within the guidelines the contributions made to an Individual Retirement Account (IRA) can be deducted from regular income.

Making charitable deductions is another effective way to reduce your taxes, but only if you itemize deductions. Those who take the standard deduction cannot realize a tax savings from giving to charity, but they can still enjoy the feeling of making a difference in the world.

Taxes are certainly not a popular subject, but everyone who works must deal with this aspect of life. The good news is that proper tax planning can make a big difference in your overall level of taxation.

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