Business and Personal Finance © 2007Chapter 12:
Planning Your Tax StrategyChapter Summaries- Financial planning involves taxes because they reduce your take-home pay. Other financial decisions also affect the amount of taxes you pay.
- Your taxable income is earned income plus interest and dividend income minus exclusions, deductions, and exemptions.
- Tax deductions are expenses you are allowed to subtract from your adjusted gross income to arrive at your taxable income. The standard deduction is determined by the Internal Revenue Service. Tax credits are subtracted directly from the tax you owe.
- An employee fills out a W-4 form, which determines the tax withheld. Preparing the W-4 form correctly ensures an employer will withhold the right amount of money owed to the IRS and state and local taxing authorities.
- Form 1040EZ is for filers with no dependents and less than a certain amount in taxable income. Form 1040A allows filers to claim deductions for IRA contributions and tax credits. Form 1040 must be filed if you are itemizing deductions and/or have more than a certain amount in taxable income.
- You can make strategic decisions that may reduce your tax liability, such as buying a home or saving money in an IRA.
|  |
|
