Personal Tax Planning is the method of looking into different possibilities so that an entity — whether personal or a business can determine when, how, or whether to conduct particular transactions that in effect will totally eliminate taxes if not then reduce it. If you want more information how to do this right, read on and learn.
Usually, a taxpayer has the option and power to complete a taxable transaction by more than a particular method. Choosing one that will subject him or her to less tax isn’t going against the Constitution. In fact, the law backs it up. This means that it’s OK to look for ways on how to lower your taxes. Some can also be avoided if you really wanted it.
Now, hold on a second. Don’t get the idea that tax evasion is right, OK? Remember that the word avoidance has a completely different meaning with the word evasion. You can come up with a legal and sensible ways on how to decrease the total amount you have to pay to avoid paying taxes. To evade though is to lessen the prices or costs by covering some of the details. That said, you can gather that what makes an evader is his or her fraudulent intent on paying (or not paying) taxes.
The following are the most common signals of evasion:
1. Failure to include some substantial amounts of income – Appropriate income tax planning involves the inclusion of ALL the income you receive for a particular tax period. If you fail to report some of them, like a shareholder omitting his dividends, you may likely arouse suspicion from authorities.
2. Irregularities in accounting – A personal tax planning method should involve a clear-cut record of your financial statement. Any irregularity such as inadequate data or amount discrepancies may cost you your reputation.
3. Improper deductions on returns – Staggering as it may be, some people alter or even create fictitious details to chop off their taxes. For example, some employees overstate their travel expenses to get a cut, or, some claim to have contributed to a charity even if they haven’t. If you are claiming for some exemptions, you should have verifications to back your claims up. Otherwise, you may be alleged of fraud.
4. Improper allocation of income – There are instances when people allocate their revenues to those who belong to the lower tax bracket, like incorporators distributing income to their children. While this may seem OK, it’s not totally honest.
There are various ways to go about tax planning especially if you are a small business entrepreneur. Strategies can be applied to both your individual tax situation and the business itself, but the general goals would be: to reduce the amount of taxable income, to lower the tax rate, to claim any possible tax credits, and to control the time when a certain tax must be paid.
If you are totally clueless on how to perform personal tax planning the smart and legal way, you can spare yourself the agony by hiring a professional tax planner. He or she will be able to help not just by making you pay less but also by promoting a better understanding of how the system works.
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