Tax Planning Strategies Resource Central

 

Tax planning is a way to plan for any life or business changes that may affect your taxes and by using tax strategies saves you money by making tax law work for you. Tax planning includes using tax exclusions, deductions, deferrals, tax rates, and credits in the right formula to keep more earnings in your pocket. 

 

Tax avoidance is the legal definition of tax planning. It is method that can can use for this purpose. 

 

The U.S. income tax system is based on the idea of voluntary compliance. Under this system, it
is the taxpayer’s responsibility to report all income. Tax evasion is illegal. One way that people
try to evade paying taxes is by failing to report all or some of their income. Sometimes people do
not report income gained through illegal activities such as gambling and selling stolen goods.
Other times they do not report all the tips they collect or the money they earn through legal
activities such as garage sales, baby-sitting, tutoring, or yard work. Such money-making
activities are part of the underground economy, which exists as a way to avoid paying taxes.
If taxpayers fail to pay what officials say they owe, the IRS can assess a penalty, in addition to
collecting the back taxes.

In contrast, tax avoidance is perfectly legal. IRS regulations allow eligible taxpayers to claim
certain deductions, credits, and adjustments to income. For instance, some homeowners can
claim a deduction for interest they pay on a home mortgage. Working parents may be able to
claim a credit for child-care expenses. There are also deductions based on the number of family
members. These are only a few of the many ways people can legally limit the tax they pay.
However, the taxpayer must be able to prove that he or she qualifies.

 

" Many people pay more federal income tax than necessary because they misunderstand tax laws and fail to keep good records "