Tax Planning: What It Is & Why You Should Be Doing It

Tax planning is the process of managing your financial plan with the goal of reducing your tax liability and safeguarding assets at the federal and state level. Most tax planning involves deductions, credits and current vs. future tax rates. When tax planning, you should be looking for strategic and legal ways to reduce your tax burden now and for years to come.

Do you remember our previous blogs “Building a Dream Team of Professionals” and “Three Quarterly Conversations to Have With Your CPA”? Chances are if you have a dream team of professionals and regularly have conversations with your CPA, then you are already tax planning effectively. If not, then you should assemble your team and start having these tax conversations as soon as possible. Tax planning should not be intimidating.  It should, however, be an opportunity to work with your existing team, build a stronger team and give you insight as you work on your overall finanical plan.

Anyone can benefit from proper tax planning, but those with more complex situations, business owners and those who have accumulated wealth, could benefit the most.

Why use a CPA? CPA’s typically work with more diverse clients and the experience of working with diverse clients and unique situations can be very beneficial when planning. Tax planning is strategic, thoughtful and goes well beyond the scope of tax preparation.

Things to Think About When Tax Planning:

• Reasonable compensation
• Executive compensation packages
• Maximizing 20% QBI deduction
• Depreciation
• Revenue recognition or derferral
• Net operating losses
• Tax / Entity structure
• Gift tax consequences
• Medicare Premiums
• Standard vs. Itemized Deductions
• Charitable gifting
• SALT limitations
• Medical expenses
• Education savings
• Capital Gains & Losses
• Child and dependent care
• Contributions to retirement plans
• ROTH conversions
• Record keeping and substantiation requirements