Functioning as a good and responsible citizen of the nation comes with many obligations, out of which paying taxes is one. Nobody just wants to bestow a major chunk of their money to taxes; neither can one escape the taxes. So what is the solution? Effective Tax Planning is the answer to all this fuss.
Irrespective of whether you are an individual taxpayer or a business entity, effective tax planning is crucial for all. The only difference that should be entertained is the complexity of tax planning for most business entities. A large number of business concerns require professional help in tax planning.
A brief on Effective Tax Planning
What exactly do we mean by effective tax planning, and why does your business need it?
As the name suggests, effective tax planning is an efficient way of managing your tax returns that promise minimized tax liability. By efficient tax planning, you ensure that all the business processes ultimately lead to the lowest possible taxes. Effective tax planning is necessary for businesses and investors to manage their finances. When you reduce the tax liabilities, you can contribute the saved chunk of money to your business or retirement plans.
To better understand the art of tax planning, you need to know about its five pillars:
This pillar is a simple step toward more streamlined tax planning. The concept of tax brackets is important here. The more income you generate, the bigger the tax bracket you attract. For instance, if your current tax bracket is the one that ends with £100,000, and you earn an income of about £110,000, HMRC will levy an extra tax on only the additional £10,000.
Tax deduction refers to the process of lowering your tax liability by reducing the taxable income. You can opt for tax deductions by managing the timing of your business expenses. For instance, spending money in late December will be much more beneficial than in early January. Getting a deduction in December will give you the benefit of deduction in April next year. Whereas if you purchase in January, you have to wait until next April to benefit from deductions.
Deferring revenue or deferring income means to postpone your earnings to the next year. Most businesses function on a cash basis; that is, they only pay tax on the income when they receive the cash themselves. It allows them to postpone the taxes until they accept the cash.
The HMRC does not allow any business to delay the tax payment even though the business owner has received the payment. The taxes need to be paid as soon as your business gets the payment. Thus postponing the income allows a company to delay the tax payment for the next year.
You can do it by structuring the documents in a way that the income is received later. This technique can be used only when there is a perfect scope of moving the income to the following year.
This pillar of effective tax planning is all about dividing the income among the family members to lower the taxable amount. If you transferred from one family member who is supposed to pay tax at a higher rate to the one who pays the taxes at a lower rate, you could save a considerable amount. Family members can structure the tax matters in a way that they can keep more of their hard-earned money.
Different incomes are taxed differently – this fact can come in your favor to reduce tax liability. Keep in mind that disguising does not mean not disclosing your taxable income. It involves converting one type of income subject to higher taxes in another kind that is subject to lower taxes is a good way to lessen the tax burden. Many taxpayers disguise their income by doing so.
Dodging refers to identifying the amounts you are currently paying tax for, but that might not need to be reported in your next tax return. This process is completely authentic in contrary to the similar-sounding term “tax evasion.” All you need to do is cross-check whether all the things you are paying taxes for must be reported. If something does not necessarily need to be disclosed, it is completely safe to eradicate it.
Noteworthy Benefits of Effective Tax Planning
Having discussed the five basic pillars of the effective tax planning system, let us move on to how it can benefit you? Why exactly should you consider tax planning? Have a look at the below-enlisted points to know in details how robust tax planning helps you:
Gives us a clearer idea about your business’s investments
Tax planning is not only a tool to reduce tax liability, but it also helps in making investments. Tax planning and investments are closely related. Various concepts determine how an investment is taxed, and an appropriate amount of knowledge of the investment taxes can take you a long way.
One should not make investments without a proper understanding of the applicable taxes. Effective tax planning helps in reducing the cost of investments. Only creating investment plans is not enough; one needs to know how to plan the taxes to make the most out of those investments.
Gives us a clear idea of the provision of tax liability and its funding
The very basic objective of an effective tax plan is to reduce tax liabilities. Tax planning is a reliable and legal way of decreasing tax liabilities. When you have a perfect tax plan, you can better understand the provisions of the tax liabilities. To ensure that the taxes do not take away all your annual earnings, you need to adapt various tax planning practices.
Authorities provide various tax exemptions, deductions, and benefits that you are likely to miss without tax planning.
Tax planning enables you to ensure that funds from taxable sources get diverted to income-generating plans
As already discussed, an effective tax plan shall help you save ample money every year. Use these tax savings for investing or generating additional income. If you run a business, tax planning is an absolute necessity for you. Business owners can escape the unnecessary taxes and park the same into their companies. The same applies to investors.
Leverage the benefit of Effective Tax Planning for your business entity!
It is completely normal for business owners not to know about these heavy tax obligations and tips and tricks. Seeking professional aid in intricate matters of tax planning is highly recommended. More often than not, outsourcing a few business processes always comes in handy. Many business firms in the US can save a sizable amount with tax outsourcing services from concerns in the South-Asian nations. By handing over the tax obligations to a reliable taxation outsourcing company, you can be free of the tax matters and focus on your core business matters.
Initor Global ranks as a reputed taxation outsourcing company that can handle all your tax affairs with utmost accuracy and authenticity.
We at Initor Global remain dedicated to going the extra mile to make your taxes as low as possible. Our team of highly skilled employees makes sure that your tax affairs are always intact and ongoing. We are adept at handling the tax planning requirements of accounting firms and CAs in the UK. You will never regret partnering up with us. Contact us now!