Personal tax planning is the process of considering different options to determine how, when and in what ways personal transactions can reduce or even eliminate tax liability. Read on to learn more about how to do it right.
Generally, taxpayers have the ability and right to conduct taxable transactions in more than one way. If one chooses the option that does not involve taxes, there is no constitutional violation. In fact, this is supported by the law. This means that you can look for ways to reduce your tax bill. You can even avoid some of them if you want.
Wait a minute. Let’s not assume that tax avoidance is the right thing to do. Remember that AVOID and AVOID have totally different meanings. They are legal and reasonable ways to avoid paying taxes and reduce the total amount you have to pay. Tax evasion, on the other hand, is about reducing the amount by fraudulently hiding certain details. This means that tax evaders have the fraudulent intent to pay (or not pay) taxes.
Signs of Evasion
The most common signs of evasion are listed below.
- Failure to take into account significant amounts of income – proper income tax planning requires that all income received in a given tax period be taken into account. If some of it is not reported, for example when a shareholder distributes dividends, the authorities may become suspicious.
- Accounting irregularities – personal tax assessment methods require a clear accounting treatment in the annual accounts. Irregularities, such as incomplete figures or discrepancies in amounts, can damage your reputation.
- Incorrect deductions on the tax return – it is not surprising that some people change their figures or report fictitious figures to reduce their tax bill. For example, some employees make deductions by inflating their travel expenses or claiming to have made donations that do not match reality. When claiming a benefit, you must support your claim with proper documentation.
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If you do not, you may be charged with fraud.
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- improper distribution of income – in some cases, income is distributed to people in lower tax brackets, such as when a founder distributes income to his or her children. This may seem obvious, but it is not fair.
There are many different ways to manage taxation, especially if you are an entrepreneur of a small or medium-sized business. Strategies can be applied to specific tax situations or to the business itself, but the usual goals are to reduce taxable income, lower tax rates, seek tax breaks where possible, control the timing of certain taxes, etc.
If you have no idea how to do tax planning properly and legally, you can save yourself some effort by hiring a professional tax planner. In such cases, they will not only help you to pay less, but also to understand the system better.
Villie Walters Ramirez is a 32-year-old sales assistant at a taxation firm who enjoys personal tax planning, accounting and bookkeeping. She has a post-graduate degree in accounting, and she has a severe phobia of cats. She enjoys travelling A lot.