By Thomas Arrison, Certified Public Accountant
Surprisingly enough, you should plan your taxes when you have been unemployed. This is especially true if you have just gotten a job.
The most prevalent motivation for planning your taxes is to legally minimize how much of your money goes to the IRS. Many years ago, Judge Landis of the U.S. Supreme Court declared that everyone had the right to legally minimize his or her taxes. To do this, you need to have an idea of what your income and deductions are now, and what you expect them to be next year. You must then move income and deductions in a way that minimizes what you pay in taxes this year. Sometimes it is worth paying taxes now in order to save even more in taxes next year.
However, ” take the money and run” is a valid alternative. In this case you worry about tomorrow tomorrow. You delay as much income as you can afford to next year and accelerate as many of your deductions as you can to this year. This way, you pay the least taxes possible.
Step One: Analyze your situation. Will you be paying taxes this year? If so what is your tax bracket? Are you in the 15% bracket or the 35% bracket? If you are in the lower tax bracket you will only get back $15 for every $100 you lay out for a deductible expense. If you are in the 35% bracket then the deduction gets more attractive.
Step Two: Determine where you think you will stand next year. Will you be in a higher or lower tax bracket? If you just got a job, then you probably will be in a higher tax bracket next year.
Step Three: Set your goal. Do you want money now or later?
Delaying income is tough whether you have a job or not. You get your salary or unemployment check. Your interest income or dividends is paid on a set schedule, so you cannot postpone them to next year.
Paying your taxes
