The goal of tax planning is to arrange your financial affairs so as to minimize your taxes. There are three basic ways to reduce your taxes is to reduce your income, increase deductions, and take advantage of tax credits.

Reducing Income

Adjusted Gross Income (AGI) is a key element in determining your taxes. AGI is your income from all sources minus any adjustments to your income. Remember, the higher your total income, the higher your adjusted gross income.

Two of the best ways to reduce your taxes is to save for retirement, either through a 401(k) at work or through a traditional IRA plan. Contributions to these retirement plans will lower your taxable income, and lower your taxes.

Increase Your Tax Deductions

Taxable income is another key element in your overall tax situation. Taxable income is what’s left over after you have reduced your AGI by your deductions and exemptions.

Your standard deduction and personal exemptions depends on your filing status and how many dependents you have. A good strategy for reducing your taxable income is to itemize your deductions, and the three biggest deductions are mortgage interest, state taxes, and gifts to charity.

Take Advantage of Tax Credits

There are tax credits for college expenses, for saving for retirement, and for adopting children.

The best tax credits are for adoption and college expenses. There are two education-related tax credits- the Hope Credit is for students in their first two years of college and the Lifetime Learning Credit is for anyone taking college classes.

Increase Your Withholding

You can avoid owing at the end of the year by increasing your withholding. More money will be taken out of your paycheck throughout the year and hopefully get a refund when you file your taxes.