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Have you ever wondered what happens to your tax liability with proper financial planning? The use of measures that can lessen the burden of your tax payments can be facilitated by professional financial planning. Most frequently, this is accomplished by listing all deductible expenses and costs, making donations to deserving organizations, funding your tax-advantaged retirement accounts to the fullest extent possible, and consulting with a licensed financial advisor.

Your tax liability can be decreased with careful financial planning. But what does proper financial planning involve? 

With the intention of lowering tax obligations, it examines asset purchases and sales. Timing of sales and purchases, as well as the many account types in which assets may be stored, are all involved. 

Let’s dig into more detail about tax liability and financial planning. 

What Is Tax Liability? 

The sum of money you owe in federal, state, or local taxes is known as your tax liability. Your income or the capital gains generated from the sale of an asset determines the amount of taxes you must pay. If your income is so minimal that you don’t meet the requirement for filing a tax return, it would be the only way you could avoid having any federal tax liability. However, for the majority of high earners, you’re likely to have at least some tax due in a given year between your income and investments. 

That’s why it is advised to all taxpayers to look for financial planning so that when it comes to tax liabilities they know well how much money they owe. 

How To Determine Tax Liabilities? 

Want to know how to calculate your tax liabilities? Employees can easily determine their tax burden by deducting their tax deductions from their taxable income. Calculating your tax liability may be more difficult if you are self-employed, a business owner, or a high-net-worth individual. A lot of additional factors need to be taken into account, and the more sources of income you have, the more complicated the calculation can be. Here, financial planning can be helpful, or asking an advisor for assistance may be in your best interest when managing a big number of assets and/or many sources of income. Retained tax liability must be known in order to plan for future tax payments, so be sure to ask about it as well.

How To Reduce Tax Liabilities With Financial Planning?

Here are some strategies through which you can reduce tax liabilities: 

Earn tax-free income

You can use certain tax laws to avoid paying income tax or capital gains tax on some of the profits you make, reducing your tax obligation. Additionally, some of the gains you make aren’t subject to income tax.

You can also reduce tax liabilities by;

•Invest in a tax-free asset

•Utilize the benefits offered by your employers, such as insurance plans, dependent care assistance, and educational assistance.

Maximize deduction

Your taxable income is decreased through tax deductions. Standard deductions and itemized deductions are typical options. Medical and dental expenses, property taxes, state income taxes, mortgage points and taxes, business expenses, and charitable donations are all included in itemized deductions.

Make a health saving account 

If you have a high-deductible medical plan that qualifies, you can also reduce your taxable income by making contributions to a health savings account. These accounts allow for immediate tax liabilities deductions for contributions, tax-deferred growth, and tax-free withdrawals for eligible medical costs. Any remaining balance at the year’s conclusion is maintained indefinitely.

Reduce Tax Liabilities With Bottomline Tax

Tax liability and reduction is a complex subject, and there are frequently a lot of guidelines that must be followed. Because of these factors, it is essential to speak with your tax expert about these issues. 

Take advantage of tax minimization and financial planning strategies that will meet your financial goals by working with Bottomline Tax.

We can give financial planning for today, tomorrow, and decades from now with the help of our tax preparation, lowering tax liabilities, and many other services.

To begin creating a financial strategy, get in touch with us today!