We can have a secure financial future if we do the following.  Earn money.  Save money.   Place money so it grows.  Pay no more taxes than necessary.

Paying taxes is an important part of our financial plan that is required by law.  By managing how and when we pay taxes, we can pay what is necessary but no more.

A financial planning best practice is to manage your finances so that you pay no more taxes than necessary.

• I accurately report my income.
• The Internal Revenue Service (IRS) standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill. The amount of your standard deduction is based on your filing status, age, and whether you are disabled or claimed as a dependent on someone else’s tax return.
• The 2021 standard deduction amounts are:
  • Single – $12,550
  • Married couple filing jointly – $25,100
  • Married, filing separately – $12,550
  • Head of Household – $18,800 I file necessary forms when they are due.
• I file necessary forms, such as W-9s, when they are due.
• I claim the appropriate number of withholding allowance exemptions that determines how much is withheld from my paycheck.
• I withhold or pay the appropriate amount of money to cover my tax liability. Owing back income taxes can result in additional penalties and interest charges
• I use tax credits when eligible.
  • If eligible, I use the Earned Income Credit EIC) to reduce taxes and increase income.  EIC is a refundable tax credit for low- and moderate-income workers.  You must have $1 of earned income.  There are maximum earned income limits.  Pensions and unemployment do not count.
  • Maximum AGI – Single/Head of Household/ widowed –  0 – $15,980; 1 – $42,158; 2 – $47,915; 3 – $51,464
  • Maximum AGI – Married Filing Joint – 0 – $12,920, 1 – $48,108; 2 – $53, 865; 3 – $57,414
  • The maximum 2021 Earned Income Tax Credit is $6,728 for taxpayers filing jointly with three or more qualifying children; $5980 with two qualifying children, $3,618 with one qualifying child $543 with no qualifying children.
• I take advantage of tax-deferred or tax-exempt investments to reduce my tax liability.
• I contribute to my retirement plan.  The 2021 contribution limits are:
  • Traditional IRA or Roth IRA contribution limit – $6,000 ($7,000 if you are age 50 or older), or your taxable compensation for the year, if your compensation was less than this dollar limit.
  • Elective deferrals for 401(k), 403(b), 457, and SARSEPs – $19,500 ($26,000) if you are 50 or older).
• I take my required minimum distributions when required (age 70 1/2 if born before July 1, 1949; age 72 if born on July 1 1949 or after).  Roth IRA accounts do not require minimum distributions during the account owner’s lifetime.
• I know my tax bracket – 10%, 12%, 22%, 24%, 32%, 35%, and 37%. My tax bracket determines how much tax I pay.
• I am aware of the exemptions, deductions, credits, and benefits I can maximize to pay the taxes I owe but no more.
• I maintain an organized financial record keeping system so I file and pay taxes I owe when they are due.