Tax planning is part of a healthy, strategic financial plan. It’s a great way to take a step back and consider how all facets of your finances and even your lifestyle as a whole have the potential to impact your tax burden from year to year. The goal of tax planning is to minimize the amount of taxes you owe. You can do so by changing the timing of your income, and expenses. It also takes into consideration any changes to tax laws that may apply to your situation, as well as strategic investments and retirement plans.
Tax planning is both a short- and long-term strategy that considers the consequences of big financial changes. There are numerous benefits of tax planning for both individuals and businesses!
Why is Tax Planning Important?
While tax planning is just one part of a family or business’s financial strategy, it can have a big impact by saving you thousands of dollars in taxes while also helping you prepare for your family’s future. This translates into more of your income for saving or spending. How you achieve this end result also directly benefits you and/or your business. For example, putting more of your income into retirement, college, or healthcare savings not only offers a tax benefit in many cases but also ensures you have those funds when you need them later on.
The same is true for estate planning, which can impact future generations of your family. For businesses, incorporating business succession planning into your tax plan can position your business for continued prosperity long after you decide to step away from day-to-day operations.
Alternatively, another advantage of tax planning is identifying financial opportunities where you may pay more in taxes yet save more money in other ways. For example, you may receive a tax deduction for your mortgage interest. However, if you can save more money by refinancing with a lower interest rate than those deductions are worth, it may make more sense to lower your interest rate. These types of decisions are complex and often only obvious with the help of a tax planning professional familiar with your financial situation.
Lastly, planning throughout the year makes gathering everything you need to prepare your taxes much easier come tax filing season.
The Importance of Planning for Your Situation
We approach tax planning differently for each individual and business we serve. Contact our licensed CPAs today to learn more about how tax planning could help you minimize your tax burden and save for the future!