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Your income tax provisions are those allowances and exemptions that you are given as a tax payer. This can include such things as energy tax credits, first-time homebuyer credits, earned income and dependent childcare allowances and other provisions. This allows a tax payer to reduce their AGI and lower their effective tax rate.
Understand Prior Income Tax Provisions
Estimating your income tax provision requires that you know your typical exemptions and deductions. These probably will not change from the prior year and should give you a guide as to what your income tax provisions will be for the coming year. You can confirm this by looking at a prior year’s return in order to confirm.
Write Down Life Events That Have Changed
Write down a list of everything that has changed about you over the prior year. For those things that have changed, look them up in the current tax schedule to see if there are any allowances for them. Did you open an individual retirement account, purchase a home, buy solar panels for your roof, send a child to college? All of these life changes will help you estimate what your provisions are going into the new tax year.
