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Different Methods of Tax Planning for Reducing the Tax Bill.pdf

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Tax planning is defined as “Exercise undertaken to minimize tax liability through the best use of all available allowances, deductions, exclusions, exemptions, etc., to reduce income and/or capital gains.”

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									Different Methods of Tax Planning for Reducing the Tax Bill
Tax planning is defined as “Exercise undertaken to minimize tax liability through the best use
of all available allowances, deductions, exclusions, exemptions, etc., to
reduce income and/or capital gains.” Tax planning does not break any laws or regulations, as
it is nothing but using the rules and regulations to one’s advantage. There are different ways
by which tax planning can be done. Following are the four methods of tax planning.


    1. Short Term Tax planning


        As the name implies, it is a short-term tax planning done to minimize the tax liability
        for a particular year. This kind of tax planning is done at the end of the financial year
        to reduce taxable income in a legal manner.


    2. Long Term Tax Planning


        The long term tax planning helps in the long run. This type of tax planning is done in
        the beginning of the financial year.


    3. Permissive Tax planning


        Permissive tax planning refers to the tax plans done by taking advantage of the
        various incentives, deductions and concessions permissible under different
        provisions of the law.


    4. Purposive Tax Planning


        As the name suggests, it refers to the tax planning done with the specific purpose of
        acquiring maximum tax benefits through careful and correct selection of
        investments.


When it comes to filing US individual income tax return, there are three important ways to
reduce taxes namely


       Reducing income
       The more money one makes the more taxes he/she needs to pay. Therefore, the
       best way to reduce taxes is to reduce income. By contributing money to retirement
       plans or any other fund, the income gets reduced and subsequently tax bill.


      Lowering taxable income


       To reduce taxes, lower taxable income by maximizing tax deductions. Track itemized
       deductions that include home mortgage interest, property taxes, and charitable
       contributions. Increased deductions result in fewer taxes.


      Capitalizing on tax credits


       Capitalizing on tax credits is another way of reducing taxes. Tax credits are available
       for child and childcare, education, retirement savings, adoption and so on.


Taking the help of a financial expert can help taxpayers to calculate taxes properly and to
plan their finances in the best possible way. Normally, taxpayers end up paying a large
percentage of their hard-earned profits to the government more than they are required to
do. This is because of lack of advanced tax planning. Taking expert advice can help to reap
the benefits of sophisticated tax planning. Expert tax consultants make advanced tax
planning without breaking any laws or regulations.


Read More About: Individual Tax Return Checklist 2013, small business tax planning, Fbar
Form, India Capital Gains Tax, Foreign Bank Account Reporting Articles

								
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