Broker Check

Don't Waste Tax Deductions

March 07, 2019

One of the primary objectives of tax planning is to reduce an individual’s tax liability. This is often done by finding tax deduct-ions that can be used to offset income that would otherwise be taxable. In some cases an individual may actually have more in deductions than they do in income leading to a negative taxable income reported on their income tax return.

While a negative taxable income can be a good thing as it will result in no income tax due for the year, it can also represent a wasted opportunity to shelter additional income from taxes. Therefore, if a taxpayer thinks they may have more deductions than income for a given year they may benefit from some preemptive planning. For example, the taxpayer may want to seek out sources of additional income that can be pulled into the tax year in question in order to get the full benefit from the tax deductions.

Common sources of additional taxable income can be tax-deferred retirement accounts, annuity contracts with gains, and savings bond interest that has not yet been redeemed. By pulling the income from these sources into a year in which a taxpayer has excess deductions they may avoid paying tax on the income in a future year.