Tax is a tricky business and you need to make sure that you understand it to the best of your abilities. There are many different types of tax that you pay throughout your life such as consumption tax, VAT, property tax, progressive and many others. Think you won’t have to get involved with tax planning? Think again! Keep reading to find out how this process could benefit you.
What is Tax Planning?
Tax planning is a way to find out how much money you are paying on tax and also a way to help minimise the tax liability (the amount owed to tax authorities) through the use of allowances, deductions, exclusions and exemptions. Tax planning can be used in a number of ways; for example for retirement, businesses, Wills, and properties.
Types of Tax Planning
There are a few different types of tax planning that are useful for individual people, companies and organisations. Some of the tax plans include; short term tax plans, long term tax plans, permissive tax plans and purposive tax plans. The short term planning allows you to reduce taxes at the end of the income year. Long term plans allow you to plan at the end of the beginning or end of the year, permissive tax plans are permissible under different law provisions. The purposive tax plan gives you the chance to make different investments.
How It Works
When you start tax planning, you can find many guides online and you can also speak to financial advisors and solicitors to help get you started and give you all the important information that you will need to know. For example, each person has an inheritance tax allowance up to £325,000 with anything over the threshold being charged at 40%. So, if an estate was valued at £400,000, only £75,000 of that would be taxed. Since the majority of people won’t leave an estate over this amount, most feel they don’t need to know about inheritance tax. However, actively considering it and your future can help you to avoid any nasty surprises later on.
Helpful for Businesses
There are different types of taxes which can be hard to keep up with especially if you own a business. Tax planning is important for both small and large businesses because it can help them to achieve their business goals. When you have a tax plan as the owner of a business, you can lower the amount of taxable income, gain more control of when taxes are paid and also reduce the rate of tax. Depending on the type of business you have, you can find many different benefits. For example, if you have a business that is international, you can manage the timing of tax bills and can avoid double taxation.
Overall, there are many reasons why tax planning is important. If you would like to know how you can begin to manage your tax more efficiently, whether you own a business or are a private individual, speak to a solicitor or a financial advisor today.