With more than a decade of experience in the finance sector, Travis Hansberger has built expertise in the area of wealth management. The president of Millstone Wealth Management, Travis Hansberger offers a number of financial services to clients through his firm. One of these services is tax planning.
There are several techniques or strategies that are used in tax planning.
One of these is accelerated deductions. An accelerated deduction means making purchases at an earlier date than strictly required in order to avoid paying higher taxes.
Higher taxes are usually charged on income that go beyond a specified tax bracket. As an example, let’s assume that any income beyond $100,000 will be subject to higher taxes .
This means that a person or company making $150,000, will be paying higher taxes on the last $50,000 earned. Let’s further assume that the person or company is in the fourth quarter of the current fiscal year, with taxes due on April 15 of the next year.
There are two options: The first one is to do nothing and pay the tax in April. The second option is to find accelerated deductions and save on paying the taxes on the $50,000, which would be taxed at a higher rate than the first $100,000.
Accelerated deduction is done by making tax-deductible purchases before the end of the fiscal year. Typically, these would be useful supplies for the business. By making these purchases early, deductions can be made against income so that taxable income for the year will come in under the sum where the higher rate kicks in. The person or business will then have the dual benefit of making essential purchases while paying less taxes.