A tax planning strategy is a method by which you determine when, how, or whether your taxes can be reduced, if not totally eliminated.
It can help guide the conduct of both your personal and business transactions so you can have more money for other things such as expenses, expansions, and investments.
Basically, the amount you can save from utilizing an effective tax planning method can be your source of working capital.
Hence, many entrepreneurs are getting more and more interested in experts who offer tax planning services.
The experts know the rules and can easily choose which strategy (or strategies) would work best for certain situations.
Hiring them may cost some, but doing so can certainly save you a lot more in the end.
That said, you can conclude that it's an investment worth making.
Now, it's important to note that simple tax avoidance is totally different from tax evasion.
The former is about looking for ways on how to lower tax liability legally.
The latter, on the other hand, is reducing your tax amount through deceitful means such as concealing transactions or irregular accounting.
If you choose to avoid tax payment through legitimate means, you are being wise.
If you opt to evade though, then legal consequences may hunt you in the future.
A tax planning strategy can be simple or complex.
It can be designed for either an individual situation or a business.
Whichever though, a professional tax planner will likely advise you to adapt not just one but several strategies to optimize your tax cuts.
And regardless of the number of techniques, they are expected to accomplish any or all of the following: Tax Rate Reduction You can't literally make your tax rate lower but you can do some things to attain such effect.
One of these is by shifting investment assets to your children.
Children belong to the "lower-bracket taxpayer" so they are not required to pay as much as you do.
Taxable Income Reduction The best way to reduce taxable income is by availing all possible tax deductions both for personal and business situations.
This means that you should know what the deductibles are.
For instance, there are special deductions that may apply on business trips, automobile expenses, and even meals and entertainment.
Purchasing an insurance plan or investing for your retirement can also help lessen taxable income.
Delay the Due Date for Your Taxes This may not sound good because the word "delay" often connotes something negative.
However, it is not so when it comes to taxpaying.
You are not really refusing to pay what's due.
The idea is to legally delay the schedule for your payment.
You can do this by doing things that will holdup the due date of declaring an income item.
Basically, it is about postponing the receipt of income till the next payment and accelerating the present payment of expenses.
The rule of thumb is this: Minimize taxes now even when it means paying higher in the future.
No one knows what's going to happen anyway.
Laws on taxation are always changing and you might end up paying something lower next time.
Also, personal plans and conditions may take a turn and consequently, can affect the tax you have to pay.
It would be ideal to take you chances.
Besides, this is a tax planning strategy that has been tried and tested for decades.
Businesses continue to use this tactic because apart from being feasible, it has never failed to work.