A Brief Note On Tax And Tax Policy

914 Words Jul 10th, 2015 4 Pages
Tax planning is a process of analyzing one’s financial situation with reference to its tax implications. In order to minimize tax payments, a taxpayer can plan financial activities to maximize tax savings. There are many different ways to create a tax strategy, and many different factors and situations that need to be taken into account.
One of the first steps in creating a tax plan is knowing the tax rate (Spiegelman, 2015). This can easily become complicated, tax rates vary with income and type of income. Ordinary income is taxed the most, ordinary income is income that is received from working wages, tips and self-employment. In 2015 the rates on this income ranges from 10% to 39.36% (Spiegelman, 2015). Knowing the tax bracket can assist in decisions in regards to investment decisions and charitable contribution decisions. Another major category of income is long-term capital gains, these are incomes from the sale of stocks, bonds and real estate. The range for this income is 15% to 23.8%, however the profit from the sale of art, coins or collectibles are taxed at 25% (Spiegelman, 2015).
Also, tax liability should be calculated. If tax liability is known it will be easier to create a plan in order to minimize it. If it is difficult to estimate the exact tax liability at the start of the year, due to the nature of business or profession, then an intelligent estimation will suffice (Dembla, 2013). This step also involves providing for fixed commitments. A salaried…
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