With the financial year only one quarter away from coming to an end, it is necessary that we discuss the importance of effective tax planning.
So, what is tax planning?
Tax planning is a practice that every income-earning individual and business should incorporate to ensure that no unexpected bill is dropped by their door at the end of the financial year. Tax planning is an important strategy to help a business achieve its financial and business goals. Business be it small or large, should have its tax planning strategies in proper place as it helps in lowering the amount of taxable income, reducing tax rates, facilitating more significant control over how taxes are being paid.
The benefit of tax planning:
- The first and foremost benefit you can yield is reducing your taxable income, in case you have earned comparatively higher than usual. Earlier tax planning can help you save on taxes.
- Prioritizing you tax planning can help you take advantage of changes in the federal tax law that happen almost every year. By doing tax planning earlier, you can make benefit from whichever law is expiring or plan for the tax laws to be implemented in the next financial year.
- One of the significant advantages of tax planning beforehand is you will be able to calculate your losses and loans. This way you can judiciously select a quarter where you think it will profitable to sell your losses or get maximum benefit from the deduction in interest.
- By prioritizing your tax planning, not only will you be able to minimize tax deductions but also maximize your possibility to have deductible debt.
- Tax planning helps in making a better business decision, chalk out future cash flow and tax payments. It also safeguards the business from any litigation.
Common mistakes people make in tax planning:
- Business often knowingly or unknowingly, don’t keep track of all the financial transactions that have been made throughout the year. This results in penalty or auditing by the income tax department. It is important the all the documents are appropriately organized and can be easily accessed as and when needed.
- Either taxpayers delay it till it becomes a compulsion or they don’t do it all. While not paying straight away subjects you to the penalty, delaying it till the end of the financial year, results in filing and reporting riddled with mistakes. It will be in your best interest if you prioritize tax planning to avoid any last minute hassle.
- Businesses think that they can efficiently manage taxes in the last month, without realizing that tax planning is a year-round process and needs the expertise of a tax planning professional that will make sure your finances and taxes are sorted and compliant to the changing federal tax laws. Such accounting firms will ensure that all aspects of your tax be it corporate tax planning, business tax planning or personal taxes, all are profoundly researched, and such potent strategies are developed that are helpful in reducing the tax burden on the business.
Get in touch to upgrade you tax planning with the knowledge and expertise of a tax firm, today!