WHAT ARE THE BASIC TAX PLANNING STRATEGIES?
Many people hate tax season and for good reasons. It can be overwhelming, frustrating confusing at times. This is especially true now with the 2018 amendments to the United States tax laws, rates, brackets, and other provisions.
While hiring an accountant can help, there are still things you can do on your own to get the greatest service and the best results. Tax planning is one of these things. This will allow you to benefit from the new developments while also lowering your overall tax burden and increasing your returns.
But what exactly is tax planning? In this post, we'll go over the fundamentals of tax planning as well as a few tax planning strategies you may apply both now and in the future.
WHAT IS TAX PLANNING?
Tax planning is the analysis of a financial position or plans to ensure that all aspects work together and allow you to pay the least amount of tax possible. A strategy that reduces the amount of money you pay in taxes is referred to as taxes. This should be an important part of an individual investor’s financial plan. Lowering tax liability and increasing one’s capacity to contribute to retirement plans are crucial for success.
WHAT ARE TAX PLANNING STRATEGIES AND HOW THEY CAN HELP?
Here are some of the high-level tax ideas to help you establish your own goals and find additional savings possibilities during tax season.
· DEFINED BENEFITS PLANS
A defined benefit plan is an employer-sponsored retirement plan that is open to businesses of any size, including sole proprietorships. A defined benefit plan, such as a 401(k), allows businesses to contribute more money each year than to a defined contribution plan. It offers benefits to both employers and employees. Employers are entitled to tax deductions for contributions and employees receive fixed and pre-established benefits at their retirement.
· CAPTIVE INSURANCE COMPANIES
You can start your insurance firm to provide risk coverage if you have a significant risk in your organization and are having difficulties getting adequate insurance in the marketplace. You can tailor tax-deductible insurance plans to your specific requirements by creating an 831(b) captive insurance company.
Many clients have established captive insurance firms as a means of reducing risk in their operations. Furthermore, an internet marketing professional can develop captive insurance coverage to shield them from lawsuit risk and compensate clients if they want to request a refund.
Business owners may also create an insurance policy to safeguard their brand and reputation, as well as a unique coverage that protects them from future legal or regulatory action.
· INSTALLMENT SALE
When you sell a firm, the buyer usually gives you a lump sum settlement. You must declare the asset's profit or loss, and if there is a profit, you must pay taxes on it. You can opt to take a series of payments over some time with an installment sale, creating a deferred tax liability, as specified by tax law 453(a).
An installment sale is a sensible method to obtain tax-advantaged revenue while providing a flexible transition of ownership for your firm if you want to sell it but don't need all of the money upfronts.
· RESEARCH AND DEVELOPMENT TAX CREDIT
The tax credit for research and development (R&D) is one of the most significant and underused incentives available to businesses. The tax credit is sometimes misunderstood to apply solely to research and technology firms, although it has a far broader scope. If your company contributes to innovation for the public good in some manner, such as developing or designing new processes or products, or improving on current processes or goods, you can claim the R&D tax credit.
Tax season is approaching and you’ll have to take time to establish your major financial objectives this year before meeting with your tax firm - whether it's saving more for retirement or generating higher income. Then look at some of these advanced strategies to see if you can reduce your tax liability.