Tax Policy

Proper Income Tax Planning for Individuals

Tax Planning

Proper tax planning for individuals is a year-round project that should be handled with your trusted tax professional.  Often times, clients will leave their tax planning until the last possible minute – during tax season, after the previous year ended.  Waiting this long leaves very few options on the table for the client which may leave them feeling surprised or even annoyed.

However, with a little monthly or even quarterly planning, there could be a wealth of tax planning opportunities for you and your family.  There are various itemized deductions, tax credits, and loss harvesting opportunities that can legally allow you to lower your income tax bill.

Additionally, if you plan ahead you can figure out all the details about moving to/retiring in a state with no state income tax.  The most popular are: Nevada, Washington State, Florida, Alaska, and Texas.  This would lead to a larger tax refund or a lower balance due.

Tax Credits

Tax credits are in place to actually reduce the amount of your taxes.  There are various types of tax credits available to individual tax payers such as: credits for the amount of children you have, secondary education costs, and taxes paid for income earned (and tax paid) in a foreign country.

If you have children, and both parents are either students, disabled, or working (employed or self-employed), you would also be able to claim a dependent care credit for any camp, nursery school, or day care costs. Documentation to justify these credits is often necessary.  Some credits allow you to receive a refund while other credits are non-refundable.  Either way, it is important to maximize your credits to lower your overall tax bill.

Itemized/AGI Deductions

Itemized and Adjusted Gross Income (AGI) deductions can be valuable for reducing your overall tax bill.  An AGI deduction is an “above the line” deduction that reduces your income.  These include alimony (for the payer), student loan interest, half of the self-employment tax, and a $250 educator expense.

Itemized deductions, shown on Schedule A of your tax return, also assist you in reducing your income.  These include medical expenses (usually above 10% of your AGI), charitable contributions, mortgage interest, state and real estate taxes, and non-reimbursed employee expenses (above 2% of your AGI).

Fast forwarding expenses or leaving them for the following year can be an important planning tool when attempting to reduce your overall tax liability.

Loss Harvesting

Lastly, loss harvesting pertains to clients that have capital assets (often stocks and bonds) that they can sell for a loss.  Taxpayers are able to reduce their ordinary income by $3,000 a year if filing with the married filing joint status (any additional can carry forward).

This can also be beneficial for clients who are in high income brackets and have large capital gains in a given year.  Clients in the highest tax brackets can often pay almost one-third of their capital gains to federal and local governments after taking all taxes into account (including the net investment income tax).  So, loss harvesting can be a valuable tax tool to reduce your overall income.


Planning to lower your income tax can bring about a wealth of tax credits, deduction, and loss harvesting opportunities.  It is difficult to qualify for all deductions while the tax return is being prepared.  I strongly suggest setting up monthly or quarterly appointments with your favorite tax accountant to take full legal advantage of the tax system.  Keep in mind that a great way to make the most out of your retirement income is to move to a state with no state income tax – start planning!

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

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