What is Tax Planning?

Tax planning is the art of arranging your affairs in ways that delay or reduce taxes. By using effective tax planning strategies, you may have more money to save and invest or more money to spend.

Put another way, tax planning means deferring and potentially avoiding taxes by taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and generally making maximum use of all applicable breaks available under our beloved Internal Revenue Code.

While the federal income tax rules are now more complicated than ever, the benefits of good tax planning are arguably more valuable than ever before.

Of course, you should not change your financial behavior solely to avoid taxes. Truly effective tax planning strategies are those that permit you to do what you want while reducing tax bills along the way.

How are tax planning and financial planning connected?

Financial planning is the art of implementing strategies aimed at helping you reach your financial goals, be they short-term or long-term. That sounds pretty simple. However, if the actual execution was simple, there would be a lot more rich folks.

Tax planning and financial planning are closely linked, because taxes are such a large expense item as you go through life. If you become really successful, taxes will probably be your single biggest expense over the long haul. So planning to reduce taxes is a critically important piece of the overall financial planning process.