Tax Planning Defined
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What is tax planning?
Tax planning is not something that happens only at year end. It seems so many taxpayers are hit with a large tax bill at the end of the income tax year, that they vow to not let that happen next year. However, they either do not know how and where to start, or they just never start any process. You have good intentions, but nothing is put into place. You need tax planning. It is essential for your financial and/or business success. What is it?
A good tax planning program is a year round process. Proper tax planning can help you with the following:
- reducing your tax burden,
- budgeting your tax bills
- put off (defer) some income to a later year,
- schedule your expenses in a beneficial way for you (have them deducted sooner than normal)
- timing your purchases in an advantageous matter
- calculating the tax effect of your purchases
- consider the effects of your various sources of income have on your tax bill
- consider how your sales fluctuations will affect your overall tax picture
Characteristics of a good tax planning program include:
- Takes into consideration your current income, expenses, and financial position
- Knowing your personal and/or business financial goals and objectives
- Knowing your capabilities and resources to achieve your goals
- Easy to understand
- Easy to follow (is realistic)
- Specifically lists steps you need to take
- Has a beginning and ending point
- Can be continually updated, as needed
- Contains a worst case scenario
Any good tax planning professional or advisor can help you with the above.