The best tips for individual tax planning include developing knowledge about tax obligations, obtaining professional advice, and keeping good financial records. In many jurisdictions, there is a wealth of information about tax obligations and strategies for saving on taxes in the form of websites, magazine articles, and books. This information can be overwhelming and confusing for some people, however, so it is often a good idea to speak with tax professionals before taking deductions or making assumptions about what one owes. It is also important to keep and organize financial records so that they can be used to file taxes as well as defend any challenges during an audit.
While it is important that people pay the taxes that they owe, it is equally important that people do not overpay taxes. Many people are unaware of the various deductions and credits to which they are entitled. Conversely, some people may take deductions or credits to which they are not entitled because they misunderstand tax law or receive poor advice through media sources or friends. To avoid overpaying or underpaying taxes, people should consider meeting with a tax attorney, accountant, or tax specialist who can provide accurate information about individual tax planning. In situations where a person's taxes are relatively straightforward, an individual may need only one consultation with a tax expert. For those with more complex financial situations, hiring an expert to prepare one's taxes each year may be a good investment as well as insurance against an audit.
One of the best ways for taxpayers to review their financial situation and determine eligibility for tax credits and deductions is to save financial records and organize them so that they can be easily reviewed during tax planning. In many cases, common expenditures such as health insurance premiums, school tuition, and even some transportation costs can be deducted from taxes. In addition, some governments offer special tax credits to students as well as working people who earn only a moderate income. A tax preparer or taxpayer can make use of financial documents to determine exactly which credits and deductions apply. It is also important to hold onto these documents during and after individual tax planning as a way of countering any challenges made by a tax authority against credits and deductions. By having the documents handy, the taxpayer can avoid the inconvenience of an audit as well as having to repay back taxes and penalties.
