We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is Involved in Income Tax Planning?

Kristie Lorette
By
Updated: May 17, 2024
Views: 5,367
Share

Income tax planning are the strategies that an individual or business devises to minimize tax payments. It involves devising and putting a plan in place on minimizing tax payments. The other part involved in income tax planning is tax management, which is essentially, the implementation of the income tax planning strategies.

There are two primary strategies involved with income tax planning. The first strategy is to minimize the income tax liability of the individual or the business. The second primary strategy is to plan out and fulfill financial goals without increasing the tax liability of the people or business involved in the income tax planning process.

In order to reach the goals set in the income tax planning strategies, there are three primary steps that individuals and businesses have to take. The first step is to plan the strategy so that the individual or business pays the least amount of taxes on the transaction as possible.

For example, in determining which retirement savings account is the best one for the individual or the employees of the company, the personal financial situation of each person should be considered. An individual retirement plan (IRA) may meet the financial goals of some individuals, but it may take a Roth IRA to meet the goals of other types of individuals. Part of income tax planning is determining which types of actions, accounts and transactions provide the best tax outcome.

Income tax planning not only involves reducing the tax liability on income, but it also requires the individual or the business to defer income. When the individual determines the best ways to defer income, they are also figuring out the best ways to defer the tax liability of their actions as well. For example, a financial advisor may tell an individual to take a capital gain by selling an investment to use as this as a tax advantage in a particular year.

Finally, tax planning involves determining the deductions that are permitted under the law. Individuals and businesses should look for ways to maximize the tax deductions they can take. Individuals and businesses should also look for the maximum number of ways possible to take deductions. The more legal deductions an individual or business can take, the lower the taxable income is and the lower the tax obligation is, which is the ultimate goal of income tax planning.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Kristie Lorette
By Kristie Lorette
Kristie Lorette, a storyteller, copywriter, and content creator, helps businesses connect with their ideal audiences through compelling narratives. With an advanced degree and extensive experience, she crafts engaging long and short-form content that drives results across various platforms. Her ability to understand and connect with target audiences makes her a valuable asset to any content creation team.

Editors' Picks

Discussion Comments
Kristie Lorette
Kristie Lorette
Kristie Lorette, a storyteller, copywriter, and content creator, helps businesses connect with their ideal audiences through compelling narratives. With an advanced degree and extensive experience, she crafts engaging long and short-form content that drives results across various platforms. Her ability to understand and connect with target audiences makes her a valuable asset to any content creation team.
Share
https://www.wisegeek.net/what-is-involved-in-income-tax-planning.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.