Business

5 Effective Ways To Manage Family Taxes

Taxes are contributions mandated by the government to fund expenditures for public welfare and services. Evasion or refusal to pay taxes is punishable by law, so it’s very important to make sure that they’re paid on time. Different taxes are imposed depending on the country or state, but it’s usually directly reduced from a person’s gross income.

As a member of a family, your domestic obligations, family relations, and marital status have a direct impact on the amount of tax that you’re contributing. This means that having multiple people in the household will likely increase the overall tax contribution of your family.

Managing taxes can be a tricky task as the rules and laws that govern them are complex. This is why if you’re not that familiar with taxes, it’s best to just hire professional services from tax experts like James Family Tax Services.

But even if you have tax experts on your side, it’s also a good idea to learn the basics of tax management. If family taxes are among your responsibilities, here are some helpful tips to help you manage them effectively:

  1. Calculate And Record Taxes

It’s always recommended to have a better understanding of how taxes work in your jurisdiction. In Texas, taxes aren’t imposed on an individual’s gross income. However, the removal of personal income tax has a catch behind it: the imposition of higher sales tax on the state, which is similar to other states that have removed income tax.

The higher sales tax is the reason why you should make a family budget report. Make a list of all the things that your family spends every month. For Texas, you can use the conversion of 6.25% for every purchase that you make so that you’ll know how much tax you need to give back to the state.

  1. Get Due Credits

Several credits are given to parents in general. Whether you’re a single parent or you’re with your spouse, having a kid will entitle you to the benefits of the American Rescue Plan Act (ARP Act) which can reach up to USD$3,600 depending on the age of your children. For adoptions, USD$14,300 per year is given to help you with raising your child. This can lessen your burden and even if you don’t use up all your credits within a year, you can let it roll over to the next year, for up to five years.

  1. Split Incomes

Income splitting is one of the most popular ways to effectively manage family taxes. This involves shifting an individual’s income to a family member with a lower income. It may benefit a family especially if the gap in the earnings between the two people is high. Because of the brackets in the tax system, paying for the whole family using the lower income as the basis of the tax may help reduce your family’s overall tax.

  1. Use Tax Shelters

Another option to help manage your family’s taxes better is to use a tax shelter. It’s a legal way of storing your assets in retirement accounts or health savings to minimize your tax liabilities. It isn’t illegal compared to tax evasion, as it only allows an individual to change their tax liabilities. Some people resort to cryptocurrencies, but there have been major disputes regarding the ones that are made outside of the US due to their legitimacy. You can also donate to charitable institutions to gain tax deductibles that will reduce your annual gross income, thus, lowering your tax bracket. 

  1. Prepare For Special Situations

There are changes that may affect the way a family is taxed. Specifically, there are different tax rules for special situations like divorce and the death of a spouse. Depending on the situation, filing the necessary documents will allow you to manage your taxes better during the event. For example, a divorced person can file taxes as a single person instead of a family for the whole year. This can affect the individual’s yearly returns and result in lower taxes than when they were married. 

5 Effective Ways To Manage Family Taxes
Business concept of family economy and expenses. Dollar bills and family sign

The Takeaway 

Taxes will always be there to sustain society’s needs as its revenues provide for the government’s projects and activities. Awareness of existing taxation laws can be helpful, as well as being conscious about your expenses.

Although there are many ways to make sure you’re paying just the right amount of taxes, seeking help from a professional is always ideal. It’s the best way to learn and expand your knowledge about how tax works and how you and your family can manage them efficiently.

Moreover, tax management is best done with proper financial management. To avoid penalties, managing your taxes should be one of your priorities as you move forward. It won’t be easy, but working together to sort out it all out as a family will help avoid tax issues down the road.

Back to top button