2. Characteristics of Tax Planning
1. Object
2. Ethical
3. Basis
4. Study and analysis
5. Term
6. Temporary and permanent
7. Forms
3.
4. Objectives of Tax Planning
1. Reduction in tax liability
2. Minimisation of litigation
3. Productive investment
4. Reduction in cost
5. Healthy growth of the economy
6. Employment generation
5. What Is Tax Avoidance?
The term tax avoidance refers to the use of legal methods to minimize
the amount of income tax owed by an individual or a business. This is
generally accomplished by claiming as many deductions and credits as
are allowable. It may also be achieved by prioritizing investments that
have tax advantages, such as buying tax-free municipal bonds.
6. Tax credits, deductions, income exclusion, and loopholes are forms of
tax avoidance.
These are legal tax breaks offered to encourage certain behaviors, such
as saving for retirement or buying a home.
Tax avoidance is unlike tax evasion, which relies on illegal methods such
as underreporting income.
7. Methods
There are various tax avoidance strategies to ensure taxpayers save on
their income taxes and make their tax planning
accordingly
8. Savings
Spending on employer-sponsored savings schemes keeps individuals
open to tax deductions. For example, IRAs help employees save a
portion of their gross income
to ensure a happy retirement life and let them enjoy significant tax
benefits
• Deductions
• The expenses that remain non-reimbursed could be filed and claimed
under the annual tax return. However, this applies to only a specific
set of workplace expenses, which are a must for employees to keep
performing.
9. • Investments
• The governments allow deductions for investment in certain funds.
For example, the mortgage payments are subject to offering tax
benefits to the concerned investors. So, taxpayers must ensure
making an investment that helps them enjoy some tax deductions.
• Startup
• One of the most efficient tax avoidance methods is to have a startup,
as business expenses
• tend to offer huge tax benefits to individuals. This is because the tax
authorities allow all the business-related expenses for tax deductions.
10. • Health Scheme
• Expenditures made for paying health, medical, and dental premiums
offer tax-deductible advantages to the insurance holders and their
dependents. The Health Savings Account (HSA) is a plan that allows
individuals to enjoy major tax benefits.
• Tax Credit
• The tax authorities let taxpayers claim for tax credits, which
sometimes equate to a zero tax liability. This makes tax credit one of
the best tax avoidance types for individuals and businesses
11. • Advantages
• The benefits of the process are as follows:
•
• Increases income and savings for individuals and business entities both for
present and future
• Betters working capital
• Enhances savings tendency
• Offers tax shelter
• opportunities
• Ethical way of fulfilling obligations
12. Tax Evasion
Tax evasion is an illegal activity in which a person or entity deliberately
avoids paying a true tax liability. Those caught evading taxes are
generally subject to criminal charges and substantial penalties. To
willfully fail to pay taxes is a federal offense under the Internal Revenue
Service (IRS) tax code.
Tax evasion can be either the illegal non-payment or underpayment of
actual tax liabilities due.
13. • Aperson reduce his taxable income:-
• By not recording sale made by him,
• Claiming bad debts or losses which never occurred,
• Making personal expenses as business expenses,
• Claiming false donation made under different
• sections like u/s 80G,
• By not showing capital gain,
• By not showing income from benami transaction,
• By showing excessive salary paid.
14.
15. Tax management
• Thus, ‘corporate tax management’ means dealing with the tax matters of a
corporation or company with a view to maximizing the after-tax rate of return
on investments after ensuring voluntary tax compliance. For this purpose,
each corporate entity has to –1. ensure that it keeps proper records;2. deduct
tax at source where it is necessary;3. pay advance tax in time, if applicable;4.
file returns in time;5. comply with notices received from the tax authorities;
and6. be aware of legal remedies where it does not have its rights under the
law recognized.
