Tax Planning

What is 'Tax Planning'

Logical analysis of a financial situation or plan from a tax perspective, to align financial goals with tax efficiency planning. The purpose of tax planning is to discover how to accomplish all of the other elements of a financial plan in the most tax-efficient manner possible. Tax planning thus allows the other elements of a financial plan to interact more effectively by minimizing tax liability.

BREAKING DOWN 'Tax Planning'

Tax planning encompasses many different aspects, including the timing of both income and purchases and other expenditures, selection of investments and types of retirement plans , as well as filing status and common deductions. However, while tax planning is an important element in any financial plan, it is important to not let the "tax" tail wag the financial "dog." This can ultimately be counterproductive, as virtually all courses of financial action will have some tax consequences, and they should not be avoided solely on this basis.

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RELATED FAQS
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    Find out how financial advisors are often involved in tax planning and tax return preparation for their clients as well as ... Read Answer >>
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    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
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    Learn what tax strategies are available to individuals and business owners that may allow for a reduction in tax liability ... Read Answer >>
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