Basics of Tax Planning
If you wish to minimize your tax matters then tax planning is required. For doing so there are the 3 basic methods with some variations that can be helpful to reduce the taxes. With the help of reducing the income, increasing the deductions and taking the benefits you can be able to limit your taxes. Now let’s take a look on the methods one by one.
Reducing the income
There is a key that is used to determine the taxes which is called as AGI (Adjusted Gross Income) and there are so many other things that basically depend on the AGI like variety of tax credits and tax rate. AGI have measure collisions on the economic life externally of the taxes like college financial aid programs, mortgage lenders and banks as they all consistently ask over for individual’s coarse income. As the adjusted gross income is so important so that it is important to start the tax planning.
Increase the tax deduction
One of the important key measures is taxable income. When there is something left after the reduction of AGI by the exemptions or deductions then it is called taxable income. Standard deduction can be taken by almost everyone however some persons can even be capable to itemize the deduction
Take the benefit of tax credits
Tax credits are responsible to reduce the taxes. Tax credits are available for adopting children, for retirement savings, and for college expenses as well. But tax credits is said to be good for college expenses and for adoption. Mainly 2 types of education related tax credits are there. One is lifetime learning credit that is used by persons who take college classes and another one is hope credit that is mainly used by students in 1st 2 years of their classes.
There are requirement to file the income tax returns in every financial year. Return can be filed in 2 ways through the website. Users can file online tax return themselves or they can take the help of assisted filing services and another way is through the letter in which they have to interact with a CA to file the return.
Two forms are used to file the income tax returns and they are ITR-2 and ITR-1. These forms are used by pensioners or salaried persons who own interest incomes and one house properties.
A new provision of exempt income is introduced this year on the basis of which tax consultants are divided. In accordance with this provision the persons having exempt income that exceeds Rs. 5000 are not able to file the returns by using ITR-1 which is also known as Sahaj. However salaried persons having LTA (Leave Travel Allowance), TA (transport allowance) and HRA (House Rent Allowance) and are required to use the ITR-2 form this year.