Tax planning is an important and unavoidable financial aspect of life for both individuals and businesses. Accountants must think strategically when helping a client close out the tax year. Strategies for individual taxpayers and for businesses will differ. However, accountants in all cases must be aware of changes to tax laws and regulations and how those changes may affect clients.
Tax Avoidance as Tool of Tax Planning
The primary goal of effective tax planning is to reduce the total tax bill of the taxpayer. Stiglitz (1985) identifies three basic principles of tax avoidance that can be used by taxpayers in an income tax system. The availability of these tax avoidance principles also depends on different aspects of the tax system. Tax avoidance is the legal usage of the tax regime in a single territory to one’s own advantage to reduce the amount of tax that is payable within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes.
Role of Accountants in Tax Planning
Because tax laws and policies continue to change, accountants and their clients will need to regularly revisit tax planning strategies. A tactic that is optimal at the end of one year may not be helpful in the following year.
For most taxpayers, there isn’t a magic bullet to reduce taxable income to the extent many Americans might prefer. However, there are several ways to incrementally add layers of tax efficiency and savings. When combined into one strategic tax plan, taxpayers can work to reduce their taxable income as much as possible. This helps prevent climbing into a higher marginal tax bracket for regular income and capital gains.
Reducing taxable income is important as your adjusted gross income or modified adjusted gross income is used to determine Roth IRA eligibility, Medicare part B and D premiums, various tax credits, financial subsidies and aid, and the deductibility of IRA contributions, medical expenses, student loan interest, and so on.
Not every strategy will apply to your situation or yield benefits that justify the time, risk, or cost. To avoid any unintended consequences, develop your tax planning strategy with your tax and financial advisor. By keeping the focus on your entire situation and goals, you can work to prevent the tax-tail from wagging the dog.
As more individuals and businesses rely on accountants for tax planning strategies, more students may consider pursuing advanced education to achieve success in the tax profession. Student can additionally explore programs that are structured to help students gain the knowledge and skills to create and oversee effective tax planning strategies. While pursuing higher education and earning a professional degree in accountancy, students build on their foundation of knowledge and develop new skills.
Accountants need several core competencies to deploy effective tax planning strategies:
- Advanced analytical skills and a high level of numeracy;
- Accountants should be able to exhibit mathematical and financial knowledge.;
- Effective communication; an accountant’s job includes explaining complex laws and regulations to individuals who are not experts in the field;
- Effective research techniques are used by accountants to stay up to date and adapt to new federal, state, and local tax laws as they evolve from year to year;
- Detail-oriented and well organized to optimize tax planning as they examine financial statements and prepare tax returns.
Our Tax Planning Services
At Labchey Consulting, our tax team prides itself on the fact that it always offers clients more than they expect, surprising them with innovative solutions that may not be common but are definitely practical. This is in line with our mantra of always striving to stay at least one decisive place ahead of the competition. As such the specialist tax team that is selected to serve you consists of the right people who are committed to exceeding your needs.
The following are some services currently offered by our tax team:
- Compliance and due diligence reviews
- Business contracts review and advice
- Return filings and tax remittances
- KRA Tax and other Statutory audits
- Tax transformation (Voluntary Disclosure Programme) and payment plans
- Immigration services
- Registration and deactivation of taxpayer’s PIN
Article by Laban Chege, Managing Partner