What is Tax Planning?

Tax Planning

Tax planning is the analysis of current financial situation of a business, individual or any other entity to ensure that all the financial and non-financial elements work in harmony to minimize the tax burden in the current year and future years to maximize the income of the shareholders, owners or the individuals.

Tax Preparation Vs Tax Planning

Most of the time people are confused tax preparation with tax planning. Tax preparation is done to report income and pay tax and can be done by anyone. Even the software like Turbo Tax, HR-block or Liberty Tax can do it for you.  Tax planning in the other hand is done round the clock and needs an expert who has intensive knowledge of tax laws, recent tax law changes and has been in profession for many years and has been dealing with  complex tax scenario and situation and also have successfully worked on such situations.

Planning: overview

Tax planning is not only about reducing tax for current year, but it is a holistic approach and includes various aspect of financial spectrums including differing tax, shifting income and expenses, taking credits, maximizing industry specific deductions, and most of all it is to keep business away from unnecessary tax and other compliance issues and nuisance like audits and examinations.

Timing of income, timing of expenses, and change in accounting method, revenue recognition selection, planning on cost of goods sold, taking advantage of deductions, credits and investing in tax saving tools are part of the tax planning. Selecting the best retirement plan, employee benefit plans, loss harvesting and deciding on dividends and distribution to shareholders/owners are some of the example of tax planning.

Selecting a best business structure, merger, acquisition, spin-off, sale of business, and even timing of hiring and firing are also part of tax planning. There are many aspects and facade of planning which can be specific to the type of business, industry or the location.

Planning is all about building an overall comprehensive strategy around your business in the most efficient way to conduct your business with maximizing your earnings with less hassle.

How is tax planning done?

Tax planning is not a one time job. It is a continuous process. It starts with analyzing the current financial situation of the business and looking deep into future plans. There can be immediate outcomes or sometimes there may not be any at the moment. However, with a good planning in place, the investment made on the planning will certainly make a multi-fold return in near future.

Tax planner will identify those opportunities that might be overlooked or s/he will dig out those for you that may have been hidden under the tax laws and help you stay at a lower tax bracket for the current year or defer your taxes to future years according to your business needs. Obviously lowering taxes help you grow your business by investing the savings back into your business.  That would be much cheaper than borrowing from a bank or bringing in a bunch of investors into the business.. Having a good tax adviser on your side not only saves you taxes, but also provides you confidence and competitive edge with your competitors and counterparts. You might like to have a regular interaction with your adviser so that you know where you stand financially and what will be your tax position with your certain move. Planning will help you manage your cash effectively and efficiently. In simple words, tax planning is about growth, confidence and your desire to keep your financial position healthy that help you achieve your desired financial goal faster.

Wish you the best!


Comments

  1. Golden Refund Retrievers LLCMarch 1, 2025 at 3:46 AM

    This article is incredibly useful. Thanks for providing such comprehensive information.

    ReplyDelete

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