* A common tax mistake that many African Americans make is ignoring the importance of tax planning. This is a mistake that costs many families hundreds or even thousands of dollars every year. The Problem
Imagine having to walk to the store, which is about 5 minutes away. You’re in a hurry, so you decide not to grab your raincoat and umbrella so you can “save time”. You leave and come back soaked. Now, the time it takes you to clean up and change takes longer than it would have to grab the raincoat and umbrella.
Something similar happens when effective tax planning throughout the year is ignored. The time and effort that is sacrificed to“save time” throughout the year ends of costing more time – and lots and lots of money – at the end of the year, leaving the taxpayer soaked in tax debt that could have been avoided.
Tax Planning vs Tax Preparation
Tax planning and tax preparation are not the same. The reality is, there are a myriad of ways to prepare a tax return. A common tax mistake is preparing one’s own taxes to “save money”. Further, annually shuffling a box of receipts and invoices to a tax preparer and crossing one’s fingers is not the most conducive way to stay on top of tax planning concepts and potential deductions.
If the information stream stays constant throughout the year, a taxpayer can often save hundreds and even thousands of dollars.
Unfortunately, though, unfamiliarity with tax code, deductions, credits, and timing often render the hopeful recipient with a smaller tax refund or larger tax balance due at tax time.
Effective Tax Planning
Effective tax planning involves a conscience and deliberate look at one’s financial situation during the year and making adjustments and decisions that will result in a more favorable tax outcome by year’s end. And many times, timing and knowledge of tax law can make all the difference between a taxpayer owing the government money or the government owing the taxpayer money.
For example, deferring the receipt of income by a few days, choosing which house to live in once married, selling a home too soon or too late, changing one’s withholdings with their employer… all can have serious tax implications.
Every family should have a professional tax accountant that can help them with both tax preparation and tax planning.