Using Taxes to Your Advantage
What is Tax Planning?
- Tax planning is the analysis of a financial situation or plan from a tax perspective.
- It is the reduction of tax liability by the way of exemptions, deductions, and benefits.
- The purpose is to ensure tax efficiency.
Types of Tax Planning:
- Purpose Tax Planning- Planning taxes with a particular objective in mind.
- Permissive Tax Planning- Tax planning that is under the framework of the law.
- Long range and Short range Planning- Planning done at the start and at the end of the fiscal year respectively.
Tax Saving Strategies:
- Manage standard deductions- flexible tax strategies allow investors to shift when tax rules change.
- Consider bunching- craft a tax plan that bunches into a single tax year expenses that were previously deducted annually.
- Keep an eye out for new opportunities- refresh tax strategies to take advantage of new incentives.
- Update estate plans- estate tax planning should never be a "set it and forget it" process.
- Believe in basis planning- use the much higher exemption amount to keep appreciated assets in their estates.
- Pay medical and education costs directly- one way to increase the tax-free ceiling is to help pay the education and medical expenses for loved ones.
- Use the rules to your advantage- tax plan around the rules that have been in the Internal Revenue Code for a long time.
- Negotiate based on tax changes- knowing a change is coming is essential when negotiating the terms of an agreement that will carry forward into future tax years.
- Reduce taxes on your income to keep more of what you make.
- Reduce taxes on your estate so your family keeps more of what you've made.
- Reduce taxes on your gifts so you can give more.
- Reduce taxes on your investments so you can grow wealth faster.
- Reduce taxes on your retirement distributions so you can make the most of your retirement savings.