While preparing one's taxes is the in-the-moment filing of tax-related paperwork, think of tax planning as the big picture thought process that helps you reduce your overall tax burden. Tax planning evaluates all potential deductions, credits, capital expenses, and asset management that can impact your tax burden. Working with a tax planner means assessing your situation and making decisions at the right moment to maximize your tax efficiency, such that you pay the lowest tax bill possible long-term. Small changes can have a substantial impact. For instance, a tax credit for energy efficiency modifications to your commercial property might be 30% in one tax year but reduced to 22% in the next. If you make the modifications, you might miss out on an overall tax reduction. Creating a tax plan ahead of time allows you to time your actions such that you receive the maximum benefit for allocations and expenses for your financial goals.
Tax planning is helpful in a variety of sectors, including:
Corporate Tax Planning: Businesses can deduct depreciation of assets and business expenses from their taxes, so the time necessary purchases are made can be beneficial in keeping both your tax rate and total tax burden low. A tax planner can help strategize about when it makes the most sense to defer income or profits, bring forward costs, or take advantage of tax credits. Given high corporate tax rates, the potential savings are particularly valuable.
Inheritance Tax Planning: If you are likely to be subject to inheritance or estate taxes at the federal or state level, it is wise to talk with a tax planning professional. These professionals can help you decide on a mixture of gifts and trusts that will reduce the imposed taxes on anything you leave to organizations or individuals in your will. By planning, you can maximize your impact and reduce the costly tax burdens on your estate.
Capital Gains Tax and Tax Gain-Loss Harvesting: In any circumstance involving capital gains and investment losses, there are complicated rules about how you can use losses to offset gains that would have been taxable. A tax planning professional can help you understand where losses can offset your gains, cutting your tax bill for capital gains tax.
Personal Tax Planning: As your income grows, your tax rate changes and becomes a larger percentage of your income. With personal tax planning services, you can receive counsel on how to use tax-advantaged accounts, like Health Savings Accounts and 401(k)s, to reduce your taxable income and overall tax rate, all while making wise choices and saving for your future.
Tax planning professionals help you see the big picture of how your business or personal assets are structured, and whether a different structure could create a better tax situation. For instance, when choosing between an LLC, a C-Corp, or an S-Corp, different circumstances determine how much tax you will pay in any of those structures. A tax planning professional can help determine what the trajectory of your business will be and what organizational structure will save the most money.
Talking with a tax planning professional also allows you to evaluate plans for your wealth and your business. If you plan to make a major pivot that results in substantial capital expenses, your tax planning professional can offer advice on how to take full advantage of business tax deductions available through those capital improvements.
Tax planning professionals are aware of changes in tax codes, especially changes that may affect whether you choose to claim expenses or gains now or defer them in ways allowable by the tax code.
Altus Wealth Group is not a tax preparation company. We are here to help you chart your high-level strategy and determine how your assets can work for you, creating greater gains by strategically using all the options available in the tax code to minimize your tax burden.
Tax planning is the ultimate proactive strategy; waiting until tax time and filing your documentation along with a hefty tax payment is a reactive approach. Tax planning enables you to postpone taxes during times when you need extra cash flow, or to avoid taxes altogether through allowancesin the tax code. To postpone or avoid taxes, however, you must make particular decisions at certain times, and not all of these choices are made at tax time. Consider tax planning as an extension of your overall financial plan: if you want to maximize the return on your investments, such as capital gains, you have to use every available deduction and credit to minimize tax burden, which eats into your profits. A comprehensive financial plan for your business or personal assets requires a solid strategy for asset management and capital expenses that keeps your overall tax bill low while allowing you to achieve your goals, be they related to aggressively building a retirement account or growing your business into a broader market.
Let Altus Wealth Group help you create a holistic plan for your assets and business such that you maximize your return at every level while planning for a bright future.