REASONS TO START YOUR TAX STRATEGY NOW.

The taxation system is designed in a way that operational decisions or actions might have a significant impact on final tax liability. Hence, there is a need to maintain appropriate accounting records and start planning from the first day of the tax year. Most business or finance decisions can't be reversed to adjust the tax liability. So, care must be taken from the very first day of the tax year to save more.

It’s important to note that all business decisions should be taken while considering taxation impact for better tax planning. This is because some tax codes have a higher rate than others, and these codes depend on how accounting transaction is classified in the accounting books.

Prioritize high tax codes

Hence, we must prioritize high tax codes when adjusting allowances/credits. Similarly, Government encourages investment in some approved schemes by providing incentives to be adjusted against taxable income. In simple words, the investment in approved investment schemes may lead to reduced taxable income and tax liability. Further, it’s important to note that tax planning must comply with applicable regulations. Otherwise, it might lead to tax evasion which might trigger financial penalties and even criminal offences in certain cases. Hence, it's about setting a strategy that complies with the regulations and can only be achieved when you start to implement a tax strategy at the start of a tax year.

Importance of mid-year assessment

However, it should be noted that we are already halfway through the year. If you haven’t already started your mid-year tax assessment, then you are already getting behind on saving the most for 2022. So, it's not a good idea to allow another year to pass and owe more because you didn’t strategize. The idea of tax strategy is based on different pillars. These pillars include reduction of income, making appropriate deductions, and utilization of the tax credit. Although, deductions can be decided at the end of the taxation period. However, accounting records and classification needs to be done from the first day to ensure we have less burden of the tax liability at the end of the accounting period. Common tax deductions include utilizing depreciation/capital allowances, charitable contributions, tax credit, investments in health savings, retirement, and investment in approved real estate schemes etc. Further, accounting method planning, the timing of adjustments, reporting of foreign income/assets and related details need to be considered while planning for the tax liability. As a general rule, to reduce tax liability, you need to either decrease the income or increase detections. Similarly, some common tax management strategies include investing in Government bonds, starting own business, utilizing tax credit, max investing in the approved schemes and so many other ways depending on the tax country. However, it's one of the general rules that the tax rate on the capital gain is lower than ordinary income. Hence, it's a good idea to consider if some of the sales transactions can be held/deferred to be qualified as a capital gain. Overall, effective tax strategies that can help maximize tax efficiency including but not limited to the following,

1. 1- Contributing to tax-efficient accounts and Government approved schemes.

2. 2- Appropriate adjustment for the losses.

3. 3- Investing in the tax-efficient schemes by matching with the right account type.

4. 4- Hold investment for the longer to qualify for capital gain tax.

5. 5- Ensure appropriate accounting record is maintained throughout the year.

Final thoughts

Final tax liability is dependent on multiple factors. These factors include income level, deductions, credit utilization, accounting method planning, and multiple other factors. So, there is a need to sit at the table and think about how the best tax strategy can be set.

Further, it’s equally important to note that all decisions are taken throughout the year. So.it may not be possible to sort out the best tax management strategy in the last days of tax return filing. Hence, if your tax consultant has not been in contact with you as of now for the next year filing, they may not be the best fit for you. With Takeaway Tax Cares, our tax pros help you plan all-year tax service.

With Takeaway Tax Cares, we don't just help you file your taxes; we go "beyond the prep" and help you start planning today to make the best decisions for next year's taxes. Connect with one of our tax pros to start your mid-year assessment to ensure efficient tax expense/liability.