Tax guidance in plain language.

Why tax planning is important

Tax planning is the practice of arranging your affairs, within the law, to reduce or postpone the tax you pay. Individuals and businesses use it to reach their financial goals: lowering taxable income, controlling when taxes are paid, and keeping more money to save, invest or spend.

Many people only think about taxes in April, when most of the year's decisions are already made. Planning during the year, through retirement contributions, the timing of income and deductions, and choosing the right business structure, is an essential part of any sound financial plan.

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Filing an income tax extension (Form 4868)

Life gets busy, and tax season often collides with work deadlines and family commitments. If mid-April arrives and you aren't ready to file, the IRS offers an automatic six-month extension. You request it by filing Form 4868 by the original due date.

Individual returns are normally due on April 15, so an extension usually moves the filing deadline to October 15. When either date falls on a weekend or holiday, it moves to the next business day.

Important: an extension gives you more time to file, not more time to pay. Estimate what you owe and pay it by the April deadline to avoid interest and late-payment penalties.

IRS: Get an extension to file your tax return

The Earned Income Tax Credit (EITC)

The Earned Income Tax Credit helps working people with low to moderate incomes. It reduces the tax you owe and, because it's refundable, it can give you a refund even if you owe no tax at all. The credit is designed both to ease the tax burden on lower-income workers and to encourage work.

Eligibility depends on your earned income, investment income, filing status and number of qualifying children, and the income limits change every year. Many eligible workers never claim it, so it's worth checking every year.

IRS: Earned Income Tax Credit · Current income limits and credit amounts

401(k) plans

A 401(k) is an employer-sponsored retirement plan that lets you save part of each paycheck before income tax is taken out. The money grows tax-deferred, and you pay tax only when you withdraw it. Many plans also offer a Roth option, where you contribute after-tax money and qualified withdrawals are tax-free.

Most for-profit employers offer a 401(k); teachers and employees of many non-profits have a similar 403(b) plan. If you change jobs, you can roll your balance into your new employer's plan or an IRA. Self-employed people with no employees can open a Solo 401(k), contributing as both employer and employee.

IRS: 401(k) plans · Current contribution limits

Individual Retirement Arrangements (IRAs)

An IRA lets you save for retirement on your own, separately from any workplace plan. People aged 50 and over can make an extra catch-up contribution each year. You don't have to choose between an IRA and a 401(k): you can contribute to both.

Whether your traditional IRA contribution is tax-deductible depends on your income and on whether you or your spouse is covered by a workplace retirement plan. Roth IRA contributions aren't deductible, but qualified withdrawals are tax-free, and eligibility phases out at higher incomes.

IRS: IRAs · Current IRA contribution limits

The Child Tax Credit

The Child Tax Credit is one of the most valuable credits for families, and part of it may be refundable. To qualify, a child must pass the IRS tests for age, relationship, support, dependency, citizenship and residence, and must have a valid Social Security number. You must also claim the child as a dependent on your return.

The amount phases out at higher incomes. Dependents who don't qualify, for example children with an ITIN instead of an SSN, may qualify for the smaller Credit for Other Dependents.

IRS: Child Tax Credit

Filing with an ITIN

1. The IRS issues ITINs for federal tax purposes only. An ITIN doesn't authorize work in the US or provide eligibility for Social Security benefits.
2. If you have an ITIN but earned wages under an SSN, enter your ITIN at the top of Form 1040, and enter the SSN exactly as it appears on the W-2 when reporting that W-2. The IRS e-file system accepts these returns.
3. If the primary taxpayer or spouse has an ITIN rather than a valid SSN, they generally can't claim the Earned Income Tax Credit. Dependents with ITINs don't qualify for the EITC either.
4. To apply, most people attach Form W-7 to a federal tax return, with original or certified identity documents. The IRS accepts 13 types of documents; a passport is the only one that proves both identity and foreign status on its own.
5. If you already filed a return without a spouse or dependent who needs an ITIN, you can file Form 1040-X with the W-7 to add them.

As an IRS Certifying Acceptance Agent, GPT can verify identity documents for you. Learn about our ITIN service.

IRS: Individual Taxpayer Identification Number

Health Savings Accounts (HSAs)

If you have a high-deductible health plan, a Health Savings Account can cut your taxes three ways: contributions are deductible (or pre-tax through payroll), the account grows tax-free, and withdrawals for qualified medical expenses are tax-free. Unlike an FSA, unused money rolls over year after year and stays with you if you change jobs.

HSA contributions and withdrawals are reported on Form 8889 with your return. Contributions above the annual limit are taxed and penalized unless you withdraw them in time.

IRS: Publication 969, HSAs and other tax-favored health plans