Definition of Tax Planning

Tax planning is a way of minimizing the taxes using the rules defined by the tax authorities. An effective tax planning would result in an as efficient as possible tax payment. A good way for tax planning is to consider multiple factors that can include timing of incomes and expenses, size of income and expenses, etc.

Many companies use the first-year allowance for fixed assets’ depreciation in order to reduce the tax liability in the start years of operations allowing them to save tax liability. Many people use retirement plans that allow an individual to contribute a yearly amount into the retirement account out of his gross income to reduce his taxable income.