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Does wise financial planning include getting a large income tax refund every year? Discuss three tax...

Does wise financial planning include getting a large income tax refund every year? Discuss three tax saving strategies that could be effective for an individual’s personal tax savings.

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Answer #1

NO, getting a large income tax refund is actually not a good financial planning. Getting large income tax refund every year means you are not putting that money in use for you all the year. Infact we can reduce the tax by investing that money somewhere else.

Three tax saving strategies

1. Contribute to IRA = One can contribute to tax sheltered investments IRA.

2. Maximum contribution to 401(K) or similar employer plans - Employee can defer a portion of his salary or income and contribute it to tax-deferred retirement account.

3. Defer income recognition - An individual is in higher tax bracket in his working period and lower in retirement period. Thus defering income until retirement may result in paying lower taxes on income.

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