Tax Planning Basics

Any tax system by its policy compulsions relaxes the rigor of taxation in different ways. My experience as a tax adviser shows that such policy compulsions lean heavily in favor of business enterprises and sparingly in employment sector.

Another key feature is that such relaxation is shaped in majority of the tax jurisdictions in two ways.

Firstly, by introducing income reducing provisions in a given tax statute.

Secondly, by introducing tax reducing provisions in a tax statute.

A prudent tax payer can benefit a lot by asking his tax lawyer to get him best of both types of tax relaxations. It is important to draw a line between a good taxpayer and a bad taxpayer when it comes to tax planning.

A good taxpayer would always seek tax advice of his tax adviser before making a transaction, and a bad taxpayer would reach him afterwards.

It is lawful to take advantage of the artificial nature of tax laws. In layman terms it means that there would always be a gap between the business realities and the way such realities are perceived by tax laws.

Depreciation is a case in point. Some tax jurisdictions provide 100% depreciation on newly acquired business assets and are great tools for reducing taxable income and consequent relaxation of tax burden.

Some jurisdictions provide direct tax to tax reductions against charities.

And above all selecting a right business structure (proprietorship, Association of Persons or a Single Member Company) would also be of urgent considerations of tax planning in the formative phases of a business enterprise.

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