Q: Should you do year-end tax planning?
A: Tax Planning is a legal process by which the taxpayer makes optimum use of all permissible allowances, deductions, concessions, exemptions, rebates, incentives, exclusions and so forth, available under the statute to reduce the tax liability.
In other words, it is an arrangement of the taxpayer’s business or financial dealings, in such a way that complete tax benefits can be availed by legitimate means, i.e. making use of all beneficial provisions and relaxations provided in the tax law, so that the incidence of the tax is optimized. This ensures savings of taxes along with conformity to the legal obligations and requirements. Therefore, it is permitted by law.
Objectives of Tax Planning
- Reduction of Tax Liability: In most cases, the goal of the taxpayer is to save the maximum amount of tax, by properly arranging his/her operations in accordance with the requirements of the law, within the framework of the statute.
- Minimization of Litigation: There is a conflict situation between the taxpayers and tax collectors as the former wants the tax liability to be optimized while the latter attempts to get the maximum. So, a proper tax planning aims at complying to the provisions of the tax law, in such a way that incidence of litigation is minimized.
- Productive Investment: Another major objective of tax planning is for the taxpayer to gain financial resources from taxable income to different investment plans. It aims at the optimum utilization of resources for productive causes and relieving the taxpayer from tax liability.
- Healthy Growth of Economy: The growth and development of the economy greatly depend on the growth of its citizens. Tax planning measures involve generating white money that flows freely and results in the sound progress of the economy.
- Economic Stability: Proper tax planning brings economic stability by various techniques such as mobilizing resources for national projects or availing ways for investments which are productive in nature.
Tax Planning follows an honest approach, to achieve maximum benefits of tax laws, by applying the script and moral of law. Therefore, the objectives do not in any way go against the concept of tax laws.
Methods of Tax Planning
- Short-range and long-range Tax Planning: The tax planning which is made every year to arrive at specific or limited objectives, is called short-range tax planning. Conversely, long-range tax planning alludes to such practices undertaken by the taxpayer which are not paid off immediately.
- Permissive Tax Planning: Tax planning, wherein the planning is made as per expressed provision of the taxation laws is termed as permissive tax planning.
- Purposive Tax Planning: Purposive tax planning refers to the tax planning method which misleads the law. Under this type, there is no expressed provision of the statute.
Tax planning means intelligently applying tax provisions to manage an individual’s affairs, in order to avail the tax benefits based on the national priorities, in accordance with the interest of general public and government.
Benefits of Tax Planning
Tax planning can have some great benefits for any business, large or small. It involves evaluating the business’s current financial situation, estimating probable profit or loss for the next quarter, and drawing up strategies to minimise tax while maximising the value of the business.
- Save tax. The main objective in tax planning is to reduce the amount of tax your business pays by maximising its deductibles.
- More to invest – By knowing your tax liabilities, you can reinvest funds that would otherwise have been earmarked for tax back into your business.
- Strategise – Tax planning is a great opportunity to look at the options open to your business and fine-tune its strategies in all areas while we’re analysing its data carefully.
- Start early – The earlier in the financial year that you start, the more strategies that you can put in place to maximise the effects of your tax planning.
- Get a head start – For those businesses operating from a trust, tax planning provides a close estimate of the trust distribution minutes well ahead of time, saving you from needing to rush to make a decision.
- Get confident – Working through our process of tax planning allows business owners to increase their knowledge about compliance and how it works, learn strategies for minimising tax, and take a more hands-on role in the overall management of their business.
- See the big picture – Tax planning provides some great insights into a business that allow its owners to assess the larger situation: whether the structure of the business needs to change; understand where operations are occurring; get a sense of the potential profit areas currently untapped or underexplored; find new investment options and decide how best to structure those investments.
- Superannuation optimisation – Tax planning offers a chance to look at your superannuation strategies and make them as effective as possible, with a range of options like salary sacrificing to super and self-managed super funds to consider.
- Peace of mind – Eliminate unnecessary stress and uncertainty by knowing just what your business’s tax liability will be and make business decisions from a firm, stable, factual base.
- Utilise recent Budget changes – Any applicable federal Budget measures can be taken into consideration, as our agents have up-to-date tax knowledge. This ensures that your business can achieve the best possible tax outcome and that it does not miss out on any useful incentive schemes.