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3 Different Approaches to General Tax Planning

By Ruth Racey
Published: Sunday, October 25th, 2009

As an employee, understanding that certain deductions are made before receiving your net pay is necessary. These deductions are called income tax and they are necessary for you to serve your purpose as a taxpayer. You also have to accept the fact that every penny counts because you may never know when you might need them. Most of the time, you try to plan on how to go on with tax payments. This is called General Tax Planning and there are different approaches on how to go about it. 

  • Overpaying withholding tax. By doing this, you are actually loaning money to the IRS with zero interest. Make an excuse by saying that you do not want to owe anything from the government that is why you overpay taxes all year. However, what if an emergency comes that would demand cash? You cannot just ask the federal government to cover all the expenses. Keep in mind that the extra money could be used for other more important or fruitful purposes. In order to avoid this, whenever you get a refund check every spring, go look for a qualified tax preparer. He will find a way to cover taxes without overpaying it.
  • Underpaying. If there is a case of giving the government too much, there is also a case where you give lesser than what is due. Same with the first approach, you also make excuses for this one. Convince yourself that underpaying withholdings are just fine. Whenever you owe a big amount of tax bill on April 15th, cling to the thought of your savior – the credit card. However, you have to realize that there are more important things that could likely be covered by your credit card rather than taxes. If your credit screws up, you will not escape these (federal, local or state) taxes and the debts incurred from paying the said taxes even when declaring bankruptcy. These are all stipulated under the bankruptcy rules.
  • Paying the right amount. Yes, guessed it right. This is the best out of the 3 approaches presented. Doing this is not difficult. All you need to do is find a tax preparer to help balance withholdings against things that you will owe by end of the year. By talking to a tax preparer you will find out in an earlier time whether you are over-withholding taxes or doing just the opposite. After doing this, make the necessary steps and fix them before being taken aback by its repercussions.

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