What are the benefits of tax planning?
Definition of tax planning
The definition of tax planning is “the activities taken to minimise tax liabilities to ensure all available allowances, deductions, exclusions and exemptions are working together in the most tax-efficient manner to reduce the total tax bill”.
Importance of business tax planning
Tax planning strategies are typically employed to help a business achieve their financial and business goals. There are benefits of tax planning for both large and small businesses and planning plays an important role in:
- Lowering the amount of taxable income
- Reducing the tax rate
- Allowing greater control of when taxes get paid
- Maximising tax relief/tax credits available
There are always new laws and changing allowances, so regular reviews are important,
There are also different types of business tax planning strategies. Here are a few areas where an advisor would be able to benefit you and help you to save tax:
Capital gains tax
Planning for CGT means taking a number of things into account, such as what is being sold and who it is being sold to. Tax planners can do the calculations for you, and tell you what assets are exempt, or what should be included.
Corporate tax is often a large cost to profitable companies. However both small and large businesses can retain more profit or extract more value from the business from corporate tax planning.
Corporate tax planning strategies include:
- Deferring income or profits
- Bringing forward costs
- Capital allowances
Whether doing business internationally, planning to live outside the UK or coming to the UK to run a business and live here, International tax planning can help you save non UK tax as well as UK tax. International tax planing strategies include:
- Timing of tax bills
- Using tax deferral opportunities
- Foreign tax credits
- Avoiding double taxation
Dividend/year end tax planning
If you expect to hold a significant profit in your limited company this year then it may be wise to draw out a large dividend. Tax consultants will be able to advise you on the most tax efficient way to pay yourself and your employees.
Paying inheritance tax (IHT) when you die may reduce the amount of your estate that ends up being passed on to loved ones. There are IHT opportunities involving the family home such as;
- Gifting property,
- Remortgaging & insurance options.
- It is also possible to use available strategies involving pension funds.
Tax planning for individuals
Tax planning is not just reserved for bug business. Private individuals can retain their wealth through careful tax planning. Individual tax strategies include:
- Income tax
- Gifting children
- Gifting family members
Strategic approaches in relation to the situation
No taxpayer has exactly the same requirements. The individual circumstances of the taxpayer must, therefore, be taken as a basis for tax planning appropriate to the situation.
Strategic approaches for optimal tax planning in relation to the respective situation of the client can be above all:
- the choice of the legal form for the respective entrepreneurial purpose, and
- the reduction of the assessment base for income taxes including the indirectly associated shifting
of income and expenses or payments and disbursements to other assessment periods.
Nevertheless, there are certain tax planning criteria, general tax planning options:
- change of residence;
- for the sake of completeness.
Benefits Of Tax Planning For Businesses
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.
How are tax planning and financial planning connected?
Financial planning is the art of implementing strategies that help you reach your financial goals, be they short-term or long-term. That sounds pretty simple. However, if the actual execution was simple, there would be a lot more rich folks.
Tax planning and financial planning are closely linked, because taxes are such a large expense item as you go through life. If you become really successful, taxes will probably be your single biggest expense over the long haul. So planning to reduce taxes is a critically important piece of the overall financial planning process.