Tax Planning

Understanding Your Tax Bracket

The tax system is progressive, meaning the tax rate increases as your income increases. Your income is divided into different ranges, or tax brackets, and each bracket is taxed at a different rate. Understanding how these brackets work is the first step to managing your tax bill. It's important to distinguish between your marginal tax rate (the rate on your highest dollar of income) and your effective tax rate (your total tax divided by your total income).

Maximizing Tax Deductions and Credits

Tax deductions and credits are two primary ways to lower your taxable income. A deduction reduces the amount of your income that is subject to tax, while a credit directly reduces the amount of tax you owe. Common deductions include contributions to a Traditional IRA, student loan interest, and certain medical expenses. Credits can be available for education expenses, having children, and more.

Using Tax-Advantaged Accounts

One of the most powerful tax-planning strategies is to make full use of tax-advantaged retirement accounts like a 401(k) or a Traditional IRA. Contributions to these accounts are often tax-deductible, meaning they lower your taxable income for the year. The investments within these accounts also grow tax-deferred, meaning you don't pay taxes on the gains each year.