The previous post talked about some deductions and credits that you should remember. In this post, we will stress the importance of tax planning.

It is important to plan ahead each year with your taxes. Try to estimate what your total income will be and subtract out all expected exemptions, deductions, and tax credits. What tax bracket will you expect to be in?

For 2009, I expect to jump up an income tax bracket. I am hoping to lower my taxable income so that I can remain in the same bracket. How do I plan on doing this? Here is my goal:

1. As I mentioned in a previous post, I am on the market to buy a house. I hope to be able to purchase my first home this year and pick up a mortgage payment. This way, I will get the $8000 tax credit for first time homebuyers and be able to deduct the interest from my mortgage payments by itemizing my deductions. (Mortgage interest payments are usually the highest itemized deduction so it will make itemizing my deductions more beneficial than taking the standard deduction.)

2. In case I do not purchase a home (it is likely I will not find the right place or will not have the funds), I have increased my contributions to my 401k retirement plan. Since this is nontaxable income, it will effectively lower my taxable income. I also have student loan interest deductions that will lower my taxable income.

I also recommend keeping very good records of all of your spending, especially if you itemize your deductions. Keep records of all your expenses such as receipts and etc. The more organized you are, the easier it will be when you do your taxes each year. In the next post, we will discuss what to do with the money if you do get a tax refund.