Tax season may be over (at least for those who filed on time), but that doesn’t mean now isn’t a great time to be thinking about your taxes and developing a strategy for how you can save money next tax season.
This week for the first episode of the Season 2 Remix, join Syd as she sits down with Certified Public Accountant and Certified Financial Education professional., Ms. Atiya Brown for a conversation on tax planning and how to keep more of your money in your pocket and out of the US Treasury.
Atiya, aka The Savvy Accountant, is a Certi...
Tax season may be over (at least for those who filed on time), but that doesn’t mean now isn’t a great time to be thinking about your taxes and developing a strategy for how you can save money next tax season.
This week for the first episode of the Season 2 Remix, join Syd as she sits down with Certified Public Accountant and Certified Financial Education professional., Ms. Atiya Brown for a conversation on tax planning and how to keep more of your money in your pocket and out of the US Treasury.
Atiya, aka The Savvy Accountant, is a Certified Public Accountant (CPA), a Certified Financial Education Instructor and owner of The Savvy Accountant. She is dually licensed in both Canada and the USA as a CPA and has over 16 years’ experience in the accounting/finance world.
Want to work with Atiya? Purchase her Accounting Toolkit. Click here to receive 50% off ($29 from $58): https://thesavvyaccountant.gumroad.com/l/savvytaxtoolkit/sugar
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SHOW NOTES
What are taxes?
Taxes are the revenue that the government collects in order to fund public goods and services.
What are income taxes?
The tax that’s imposed against the earned money that you make.
How are income taxes calculated?
Income taxes are calculated by adding together all sources of income (W-2 Wages, Rental Income, Wages you pay yourself you’re your business…etc.) and then applying or subtracting all deductions against all earned income.
How do you reduce your taxable income?
You can reduce your taxable income through deductions or credits. Deductions are amounts that you can reduce your taxable income by to reduce your overall tax liability (i.e. the total amount you owe to the government in taxes).
- You can either apply the standardized deduction or the itemized deduction
- Standard deduction is $12,950 applied to all individual taxpayers who have less than $12,950 in itemized deductions
- Itemized Deductions are individual deductions that can be applied against earned income and can include the following types of deductions
- Property taxes
- State taxes
- Mortgage Interest
- Charitable Donations
- Medical Expenses (up to a certain percentage)
- Marginalized Deductions serve to reduce your earned income to decrease your overall tax liability. For example, if you earn $100 in income for the year and have $80 in itemized deductions, your taxable income will become $20. If your applicable tax rate is ten percent (10%), you multiply the ten percent by your taxable income of $20 to get your tax liability which will be $2
- Tax Credits serve as another tool to reduce your tax liability by reducing your net tax liability directly, dollar for dollar. For example, if your net tax liability is $2 as in the example above, and you have a $1 tax credit, your new tax liability will be $1. Tax credits are very difficult to come by.
- Tax rates are the rates at which your income will be taxed and ranges from 10%-37%.
Pandemic Updates to the Tax Code
- Charitable Donations—This year you can apply up to $600 in charitable donation deductions to your overall deductions even if you take the standard deductions
- Stimulus Check Payments – Stimulus check payments will be applied as a tax credit to your 2021 tax return
What are some strategies you can implement to reduce your tax liability?
- Leveraging retirement accounts
- Put money into a Health Savings Account (HSA)
- If you have a hobby or set of specialized skills that you can monetize, consider starting a business.
When is it time to seek help with your taxes?
- When your tax situation has undergone significant change (i.e. you’ve purchased a home, had a child, gotten married…etc.), consider consulting a tax professional to ensure that you are properly accounting your potential change in tax liability
- When the tax code changes
