What Is Tax Planning?

 

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor’s financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.

KEY TAKEAWAYS

  • Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible.
  • Considerations of tax planning include the timing of income, size, the timing of purchases, and planning for expenditures.
  • Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.

Understanding Tax Planning

Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.