Tax planning considers the tax implications of individual, investment, or business decisions, usually with the goal of minimizing tax liability. While decisions are rarely made solely on their tax impact, you should have a working knowledge of the income or estate tax issues and costs involved.
A major goal of tax planning is minimizing federal income tax liability. This can be achieved by:
- Reducing taxable income through income deferral or shifting
- Deduction planning
- Investment tax planning
- Year-end planning strategies
Investment tax planning involves evaluating how to best position assets to minimize the amount of taxes you have to pay on an ongoing basis. This requires year-round planning, and it begins with an in-depth understanding of the tax implications of various investments and investment strategies, including:
- The treatment of wash sales
- Tax-exempt investments
- Gains and losses
- 1031 exchanges
- Qualified dividends
- Options strategies
- Tax-deferred investing
- Passive income and losses
- Mutual fund taxation
If you give away wealth, during life or at death, you may incur federal taxes—and possibly additional state taxes. These taxes include gift, estate, income, and inheritance taxes. You can help protect the assets you transfer from excessive depletion by understanding these taxes and the various strategies you can use to minimize them.
Tax issues are never far from the mind of the business owner. Starting with the formation of your business and continuing through to the sale, it’s likely that many of the decisions you make will be tax based. Your choice of business entity, how you pay out profits to the owners, and your accounting decisions will all have an effect on your tax liability.
Some events in life—retirement, for example—come with tax considerations. Life event planning focuses on the effects of significant life events and on the stages of your overall investment plan.
This material has been provided for general informational purposes only and constitutes neither tax nor legal advice. Investors should consult a tax or legal professional.