Integrity Investment & Tax Advisory LLC | Tax Center
The goal of income tax planning is to help minimize your federal income tax liability. You can achieve this in different ways. Typically, though, you’d look at ways to reduce your taxable income, perhaps by deferring your income or shifting income to family members. You should also consider deduction planning, investment tax planning, and year-end planning strategies to lower your overall income tax burden.
By deferring (postponing) income to a later year, you may be able to help minimize your current income tax liability and invest the money that you’d otherwise use to pay income taxes. And when you eventually report the income, you may be in a lower income tax bracket.
Although income is generally taxable, certain investments generate income that is exempt from tax at the federal or state level. For example, if you meet specific requirements and income limits, the interest on certain Series EE bonds (these may also be called Patriot bonds) used for education may be exempt from federal, state, and local income taxes. Also, you can exclude the interest on certain municipal bonds from your federal income (tax-exempt status applies to income generated from the bond; a capital gain or loss realized on the sale of a municipal bond is treated like gain or loss from any other bond for federal tax purposes). And, if you earn interest on tax-exempt bonds issued in your home state, the interest will generally be exempt from state and local tax as well. Keep in mind that although the interest on municipal bonds is generally tax exempt, certain municipal bond income may be subject to the federal alternative minimum tax. When comparing taxable and tax-exempt investment options, you’ll want to focus on those choices that help maximize your after-tax return.