Do you know that more than 140 million individuals in the United States pay approximately 1.5 trillion in tax alone? Despite the increase in gross income in business and office work, the tax rate has been similarly rising in the United States. Therefore, it is crucial to seek tax strategy help from a certified public accountant (CPA) who can assist you in reducing your taxes.
Determining Your Classification as a Taxpayer
The first thing that every taxpayer must do is to know which classification he belongs to depending on his income. Taxable income varies among employed and self-employed individuals. Allowable deductions also differ based on your primary source of income. Thus, every taxpayer must initially determine his income classification to prevent unnecessary tax payment discrepancies.
Employed individuals, who are also known as compensation income earners, comprise the highest percentage of taxpayers in the United States. This classification includes employees who work in offices and corporations who are entitled to mandatory benefits. The second class, which includes self-employed individuals, is the second largest working class. These are freelancers who own businesses, have more than one employer, and work on their account.
Reducing Your Gross Income
Gross income comprises a large portion of the total tax withheld among compensation income earners. Thus, accountants strongly recommend that you reduce your adjusted gross income by making contributions to paid student loans and classroom-related fees. This allows you to divert your individual retirement account (IRA) plan to a traditional one, which in turn, will reduce gross income without jeopardizing the net amount.
Increasing Your Tax Deductions
Minimizing the allowable deductions from your gross income is also crucial to attaining high net income value. Your accountant devises efficient tax planning strategies to reduce itemized deductions such as mortgage fees, health care contributions, and property interest. He usually organizes your monthly dues in a columnar notebook or spreadsheet to monitor your standard deductions. As soon as you itemize your deductions and reduce the payable fees on mortgage and state contributions, you will attain a higher net income.
Increasing the Creditable Withholding Tax
The withholding tax is the total tax that is automatically deducted from your compensation by a client, payor, or company. Since the withholding tax represents a refund of the fees that you need to pay quarterly or annually, it is pivotal to increase the creditable withholding tax to balance the amount to be paid. It balances your tax liability, which means that you will have to pay a lower net value. Your accountant will assist you in filing the creditable withholding tax which you obtain from your employer monthly or quarterly. This reduces underpayment and overpayment of taxes to avoid penalties.
The Bottom Line
The share of reported tax payment has been steadily rising over the past few years among U.S. taxpayers. Studies show that the allotted tax deductions regularly increase at least 1 percent annually since 2015. Hence, it is crucial to find a bookkeeper who can audit your accounts, maximize your assets, and reduce your taxable income.