Tax planning involves analyzing a financial situation to maximize tax efficiency in order for you to pay the lowest taxes possible. Hence, it aims to lower your tax liabilities by utilizing all tax exemptions, benefits, and rebates available to you. Here at Protect Wealth Academy, our objective is to empower your financial decision-making by informing you about the different types of tax planning available. By doing so, you’ll be able to redirect your returns to investments and stretch your capital to its fullest potential! Read on to learn about how you can benefit from tax planning from our various articles today.
Benefits Of Tax Planning
- Diminishes tax liability by arranging financial operations in accordance with tax rules
- This may allow you to begin planning your finances at the start of the fiscal year
- Minimizes litigation
- Enables a more productive redirection of returns to investments
- Aids the economic development of a country
- Maintains your individual financial stability
Factors To Consider
- Planning should begin before any income has been accrued.
- The Taxable Entity is also known as the choice of organization.
- The location of a business and its undertakings.
- The residential status of an individual.
- The choice to lease or buy assets. Bought assets allow for depreciation, while leased assets are allowed deductions.
- The structure of capital. To maximize your return on capital and minimize tax liability, a mixture of debt and equity funds should be strategically balanced.
The Four Types Of Tax Planning
Tax planning means investing in the right way, at the right time, so that you are empowered to achieve all your goals throughout the fiscal year. There are four fundamental methods of tax planning.
- Short-range tax planning
Short-range tax planning refers to tax planning that is conceived and executed at the end of the fiscal year. Investors attempt to find final ways to reduce their tax liabilities as the financial year comes to an end. This usually occurs when assessors discover that their taxes are higher compared to their previous year, and want to reduce them. Short-range tax plans do not involve long-term commitments. However, they can still promote substantial tax savings.
- Long-range tax planning
Long-range tax planning refers to tax planning that is conceived and executed at the start of the fiscal year. Such planning is followed by the taxpayer throughout the year, and though it may not provide instant tax-relief benefits, it may provide benefits over time. Typically, investments are made at the beginning of a new financial year and must be held onto for longer than a year.
- Permissive tax planning
Permissive tax plans involve making plans that are permissible under specific law provisions. For instance, it involves planning earned income under specific sections of the law, taking advantage of various incentives or deductions, and planning to avail of specific tax concessions.
- Purposive tax planning
Purposive tax planning involves planning your finances with a specific purpose in order to ensure you will be able to enjoy the maximum benefits corresponding to accurate investment selections. It entails creating a suitable agenda to replace assets or to diversify business or income assets based on varying residential status.
To learn more about tax planning and how you can benefit from it, contact us today!
