Reducing Taxable Income with Tax Planning

In tax planning, to reduce your tax liabilities, what you can do is reduce your adjusted gross income. At this point of time, things will become more clear if you understand the definition of adjusted gross income properly. Adjusted gross income is nothing but your total income from all the sources after deducting the adjustments to the income, if applicable.

So, what you need to do is simply increase your adjustments as much as you can. For this, you should be aware of what kind of adjustments are available these days. Payment of alimony, payment of loan interest, in case of, student loans and traditional IRA contribution. Taxes can also be reduced if you can save for your personal retirement with the help of the popular 401(k) plans.

In tax planning, another way of reducing your taxable income is to raise your tax deductions as much as possible. There are certain expenses which can be included in the tax deduction and help you lower your annual income. These are mainly the interest payment you make on home mortgage, personal investments made in funds, gifts in the form of money given by you to a charitable foundation, money spent for availing health care facilities from hospitals, payment of taxes on estates and properties, and your state tax payment. Till date, it has been found that interest on mortgage is the best way of reducing your total income substantially.

Finally, making use of the available tax credits is also one of best tax planning measures which you can adopt. So, the tax credits related to expenses on college education, child adoption or savings made for retirement planning can help in reducing our taxable income. In the next section, let us discuss how to complete your tax formalities successfully.