It is important to undertake tax planning at the beginning of the financial year. This gives you enough time to invest in saving taxes and allows you to review tax saving options for the whole year. Delaying the tax planning process can cost you money in the long-run.
Business and Personal Tax Planning
Tax planning involves the analysis of a financial situation in a tax perspective. The main aim of developing a tax plan is to ensure tax efficiency and reducing tax liability. Some of the considerations of tax planning include planning of expenditures, timing of income, timing of purchases and the size of income. Tax planning strategies include saving for retirement or engagement in a tax gain-loss harvesting.
Business Tax Planning
For effective business tax planning, a check list of business taxes and costs is required. This includes a list of business income taxes which is usually dependent on the legal formation of the business, the state and local income taxes of the business which depends on the location of the business where for example businesses located in urban areas pay higher taxes than those located in rural areas. Also depending on the type of business and its location, you require business permits and licenses which ensure that the business in legally operational to avoid legal interferences. The total business income is also considered fo self-employment taxes which are predetermined. Some essential factors in business tax planning include the following.
A business can be a tax saving device
Every business needs a personal tax accountant who can help in organising the businesses’ tax records in order to minimise the taxes. A business filled with taxable expenses is more likely to reduce profit considering that the most important thing for an operational business is to maximize profits. Poor tax records could lead a business to being denied deductions if the business gets audited.
Monitoring changes in tax laws
Changes in the taxation systems highly affects business tax planning. New laws may include a lower flat corporate income tax rate where these lower rates are offset by the elimination of personal exemptions and higher standards of deductions. Small businesses get a higher benefit since they are not corporations and will be given a 20 percent cut on their business net income in addition to typical business deductions.
Personal tax planning
A qualified personal tax accountant should be given the responsibility of taking care of all tax related expenses. Possible sources of tax include income from self-employment, taxable refunds from state tax, tax gains, and compensation from unemployment. As at 2019, some adjustments to income include contribution to health savings accounts, business expenses paid by certain government officials and performing artists, student loan interests, a portion of the self-employed tax as well as self-employed health insurance. To reduce the personal tax payable, you need to avoid at all costs additional taxes by avoiding early withdrawals, increasing the amount of tax deductibles where you can either claim the standard deductions for filing status or itemising your qualifying deductions or have both. You can also take advantage of tax credits which not only reduce the taxable incomes but are also subtracted directly from any tax debt owed to HMRC after taking all the adjustments to income and tax deductions you are entitled to. Some tax credits include savings for retirement, college expenses and childcare expenses.