What Is Tax Planning?
Tax planning involves looking at your financial plan or situation from a tax perspective to ensure tax efficiency. When you properly plan tax all elements of your financial plan work together to be the most tax-efficient manner as possible. Everyone with their own business should be tax planning or if you are investing in a financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
How Tax Planning Works
Tax planning covers several areas. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome. Get in touch if you want more info.
KEY TAKEAWAYS
- Tax planning is the analysis of finances from a tax perspective, with the purpose of ensuring maximum tax efficiency.
- Considerations of tax planning include timing of income, size, timing of purchases, and planning for expenditures.
- Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.
Information from this post supplemented by https://www.investopedia.com/terms/t/tax-planning.asp
Planning for income tax on savings
Income tax planning should take into account the income tax treatment of savings. Simple income tax planning steps can include using ISAs or transferring savings to your spouse to eliminate or reduce income tax (and capital gains tax).
Individuals with a high income or large savings may want to consider other options. There are substantial tax breaks for investing in venture capital trusts or unquoted shares that qualify under the Enterprise Investment Scheme. Making pension contributions on behalf of your children can also offer tax advantages.
Property taxes
Owning your own property is relatively lightly taxed, though you are likely to pay stamp duty when you purchase a property as well as being liable to council tax. Unlike most other investments, your main home is exempt from capital gains tax.
However, you may be liable to capital gains tax if you own a second home, investment properties, land, business premises or use your home to generate income by renting it out, for example. Planning for income tax on the property is vital, as the tax treatment can be complex and you will also need to consider your exposure to capital gains tax.
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