Tax planning refers to the process individuals or companies undertake to maximize profit and minimize tax liability. Every citizen must pay federal, state, and local taxes. Thus, people need a proper understanding of their tax obligation to ensure compliance. The Internal Revenue Service (IRS) estimates that about 16% of federal taxes go unpaid annually. A portion of the unpaid taxes can be attributed to unscrupulous individuals practicing tax evasion. However, in some cases, tax noncompliance results from the complexity of the American tax system. Many individuals and businesses that would otherwise comply and pay taxes on time end up defaulting for lack of knowledge. Thus, individuals, small businesses, and corporations can all benefit from the expertise of professional tax accountants and attorneys working for tax planning services. Below are a few benefits of retaining professional tax planning services:
Effective Tax Strategies
Tax strategies are essential in tax planning. Tax strategies refer to the plans and methods applied by individuals to reduce their tax liability. The IRS manual stipulates that reducing one's tax liabilities is not a criminal offense. Thus, taxpayers have a right to find legal and legitimate means of reducing their tax burden. Tax planning services employ professionals with experience in developing tax strategies that fit a client's needs. There is no one-size-fits-all approach to tax strategies. Thus, the accountants must assess the taxpayer's position before suggesting a working strategy. In some cases, the tax planning service may recommend deferring the current year's tax liability to the future to free up more money for investment or personal use should the need arise.
Tax Compliance and Protection Against Penalties
Tax noncompliance attracts various penalties, including fines and jail time. Depending on the severity of the charges, tax offenses can attract criminal convictions in addition to civil liability. For instance, the United States secured 2,300 criminal tax convictions in 2020. The IRS has criminal penalties for tax evasion, failure to file returns, and filing wrong returns. Tax planning services are updated on the latest regulations and tax laws at the federal, state, and local levels. Having a professional tax planning service handle your taxes ensures they file accurate tax returns on time, preventing unnecessary sanctions.
Relevance to Estate Planning
Estate planning is an integral aspect of tax planning for individual taxpayers. Taxpayers can use applicable estate planning techniques to pass wealth to their intended beneficiaries while paying lower taxes. Tax planning services have experienced estate planning attorneys advising clients on setting up trusts and passing gifts to beneficiaries without incurring hefty taxes. Thus, taxpayers looking to pass wealth to their beneficiaries should consult a tax planning service for expert advice on estate planning. Contact a tax planning service to learn more.