What Is Tax Planning?
Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Tax planning is an essential part of a financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
How Tax Planning Works
Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.
Tax planning strategies are typically employed to help a business achieve their financial and business goals. There are benefits of tax planning for both large and small businesses and planning plays an important role in: Lowering the amount of taxable income. Reducing the tax rate
A major goal of tax planning is minimizing federal income tax liability. This can be achieved by reducing taxable income, deduction planning, investment tax planning, and year-end planning strategies
Need: What is tax planning and why you need it? It's that time of the year when your tax planning endeavours are in full swing. To start with, tax planning is a process where the tax-payer utilizes the concessions available to him under various tax laws and pays the minimum possible tax.
In other words, it is the analysis of a financial situation from the taxation point of view. The objective behind tax planning is insurance of tax efficiency. Tax planning allows all elements of the financial plan to function in sync to deliver maximum tax efficiency. Tax planning is critical for budgetary efficiency
Types of Tax Planning:
- Purposive tax planning: Planning taxes with a particular objective in mind
- Permissive tax planning: Tax planning that is under the framework of law
- Long range and Short range tax planning: Planning done at the start and end of a fiscal year respectively.
Tax Saving Objectives:
The primary objectives of your tax planning should be the following:
- Reduction in overall tax liability
- Economic stability
- Growth of economy
- Litigation minimization
- Productive investment