The wise follow the simple path. If your wisdom has failed to save on your tax-cuts then here is what you must do. If you are a “cash basis” taxpayer then you have to pay considerable attention to “time” your income and your deductions. Clear? Well, it simply means that you don’t have to pay taxes on incomes that you have not received. Also in the same manner if you make any expense on a tax-deductible commodity/product, then you can apply for a tax deduction and thereby cut down upon your taxable income.
Common people are not all-knowledgeable about taxation policies. The obvious escapes them and in the stance to do something extra-ordinary they confuse things more often. Now, this is a bad and expensive habit. You can save a considerable amount of tax by simply timing your purchases.
For example, Taxpayers who fall into the same tax- cohort for two consecutive years can shrink their taxable income by postponing income to the following year while calculating all deductions into the current year.
For those who fear to jump into the larger tax-slab is required to do the opposite. It’s risky to negate future possibilities.
Tax- riddle: suppose you have fallen under a 28% tax-slab category this year and the next year your ranking will go as low as 15%, your company needs a business computer. How will you time your purchase?
Yes perfect! The current tax-year. That’s right.
The best way of taking full advantage of the tax-slabs is to generate income and delay or deter expenses.
A cautionary word: if you are a “cash basis” taxpayer then make sure you know what constructive receipt means. For example, your mail inbox has a pending check invoiced on December 31, 2011, but cant deposit it before 1 Jan 2012 then how are you to time your income? Simple calculate it under the 2011 tax-year.
If you know how to time your income then your tax-slabs will come down automatically. Keep the deductible expenses for the year when you fall into the higher tax bracket. This plan actually works.
Still confused, don’t worry – the staff at our office can help you time your purchases. Simply give us a call or send us an email.