FI580 – Personal Financial Planning
July 17, 2009
Keller Graduate School
Tax planning is an important process when creating a financial plan. The monetary decisions an individual makes today can greatly impact the individual’s tax implications at the end of the year. The main objective of tax planning is “to maximize the amount of money you keep my minimizing the amount of money you pay” (Gitman & Joehnk, 2008, p.69). It is important to keep the objective of tax planning in mind when preparing both short-term (1 to 5 years) and long-term (greater than 5 years) tax planning strategies. I will assess my own tax situation and apply tax planning strategies to develop short-term and long-term tax planning strategies.
I will start by examining my most recent tax return. For tax year 2009, I received a refund in the amount of $3,213. The refund was larger than expected and alerted me to the fact that I need to re-evaluate my short-term tax planning. First I examined the reason for such a large refund. My annual income was decreased quite a bit in the second quarter of 2009 due to unemployment. This change in income level lowered my tax bracket. Also, I elected to decrease the number of exemptions as calculated so as to have more money withheld from my paychecks when I was working. The reduction in exemptions along with the lower tax bracket contributed to the large refund.
I began a new career at the end of 2009 which carried over into 2010. The salary level is similar to that of my prior position. I do not expect any major changes in my taxable income over the next 1 to 5 years. I claim Head of Household and have 3 dependent children. My short term strategy is to have enough taxes withheld to cover my tax liability, but also to reduce the refund amount to allow more money for investing in savings during the year. I decided to keep the calculated exemptions for 2010 to increase my net pay. The difference can then be... [continues]
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