Free 2018 Tax Planning2019-01-05T15:05:52+00:00

Free 2018 Tax Planning

Should I make that large purchase

When is the best time to make a large purchase?

This question is crucial when the taxpayer is considering making a large purchase at the end of the tax year.

The answer depends on which year the taxpayer foresees he or she will have the higher income. In years with higher income, more writes offs are needed to lower the adjusted gross income. This in turn, puts the taxpayer in a lower tax bracket and hence pays less tax.

Also, the lower adjusted income might put the taxpayer in a position where they can enjoy certain credits and deductions.

For example, if Joe intends to triple his income next year, he will be better off making the large purchase the following year. The higher deduction will reduce his gross income and in turn increase the likelihood that he will be eligible for credits like child tax credit, child care credit and the education credit. This has a multiplying effect on tax savings. Rather than saving $200 in year one, he could save $2,000 in year 2.