September 23, 2023

Why Is Tax Planning Important?


One definition of tax planning is the analysis of a financial situation or transaction from an income tax perspective, Askey, Askey & Associates, CPA, LLC explain in a recent newsletter to their clients. It is the legal art of arranging your financial affairs in ways that minimize the income tax impact, and if you haven’t been continuously planning throughout the year, now is very much the time for end-of-the-year tax planning.

While tax planning is something typically viewed as an end-of-a-tax-year exercise, good tax planning is something that should occur on a continuous basis throughout the year. Year-end tax planning is nonetheless important because there are many things that can be done before the end of your tax year that will either reduce your taxes or defer your income tax liability until some future year. (There are very few things that can save taxes after the close of your tax year.) But good tax planning is typically the result of understanding the income tax consequences of every financial transaction engaged in throughout the year.

Failure to take the income tax consequences of a specific transaction into consideration before entering into that transaction can easily result in paying much more tax than you may have had to pay with good planning. That is not to say that the income tax considerations of a prospective transaction should dictate whether to enter into the transaction or not. Financial transactions should be entered into based upon the overall financial results, and income taxes are only a part of the decision process. By the same token, ignoring the income tax impact of a transaction will always yield an unpredictable, and likely undesirable result.

Tax planning is not typically a do-it-yourself project. The complexities of the tax laws make it extremely risky for the do-it-yourselfer.

One little misinterpretation or misunderstanding of an income tax provision can yield wildly unexpected results. Tax planning should always be done with the assistance of a qualified, experienced tax professional, and it should always be done in concert with your financial planner, and, if applicable, attorney.

At this point in the year it is probably safe to say that there won’t be any changes that will affect your 2020 income tax liability. Askey, Askey & Associates continuously monitor activity in this arena and once there is something concrete on the table, they will certainly be available to assess its impact on an individual’s financial situation.

Askey, Askey & Associates, CPA, LLC is available to assist with your tax planning. There is a section on their website specifically to provide a multitude of tax planning ideas. You can access that section here. Or give Askey, Askey & Associates a call and they will assist you with your tax planning needs.

Askey, Askey & Associates, CPA, LLC, have two full-service offices located in Leonardtown at 23507 Hollywood Road, P.O. Box 662, Leonardtown, MD 20650, phone: 301-475-5671; and in La Plata at 105 Centennial St., Suite D, La Plata, MD 20646, phone: 301-934-5780.

For more about Askey, Askey & Associates, CPA, LLC, visit their Leader Member Page, Facebook or LinkedIn.

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