Well if you have fallen behind with your taxes, understanding tax law may not be high on your priority list. However, understanding the law is what will save you money at the end of the day.
Many may believe that income tax is a somewhat recent evil – maybe something that was dredged up within the last 100 years or so? Taxing in the United States has been around as long as our written history. During the early years of our nation taxing was levied in the form of ‘internal taxes’ on what might have been considered luxury items at the time: sugar, alcohol, carriages and tobacco to name a few.
But today, our tax system is much more complex, with a web of complicated deduction and credits. It’s no wonder that people fall behind. How is the average American supposed to keep up with all this?
There is not a template for a tax cut scorecard that you can fill in and erase. This is why many turn to a professional tax preparer and planner, who can help them navigate the complexities of the tax laws.
If you prepared your income tax return on-line with a “free service,” it may be a wise move to have a professional make sure you took all the deductions to which you were entitled. By selecting the right tax preparer and becoming involved in your tax planning, you can put real dollars into your pocket without getting a raise if you are an employee or increasing sales if you are an employer.
But don’t forget about retirement planning. As you take a look at the options that are available you find that it is not a one size fits all. If you are looking to make a small contribution then an IRA (or even a Roth IRA) might work for you. But if you are looking to get a large tax-deductible contribution then a wise choice may be a cash balance pension plan.
Cash balance plans are actually part of the defined benefit plan family. These plans can come in different shapes and sizes. But the key takeaway is that these plans will allow substantial contributions that will dwarf IRA or even 401k contributions.
But there is a risk to these plans because they are permanent in nature and do not offer elective deferrals. But for the right person, these plans can work magic for many of the high-income taxpayers. That’s why financial advisors and CPA love them so much.
Just make sure that you don’t forget to get your financial house in order. Taxes and retirement planning should be a high priority. Don’t let them get brushed aside.