Tax Planning Is More Than Just Tax Filing
What Is The Distinction Between Tax Planning And Tax Filing?
Tax planning involves a wide range of strategic decisions and implementations which affect your overall estate plan. In fact, there is arguably no other area of law that is more complex and that contains as many guidelines as the U.S. tax law. In addition, there are also State and Local Tax laws (SALT). The impact of SALT has become even more significant ever since the passage of the Tax Cuts And Jobs Act, primarily because the legislation now limits the SALT deductions to only $10,000.
The understanding of such complicated set of rules is a fundamental key to tax planning. Proper tax planning is a proactive measure that one takes to arrange and rearrange their finances in order to limit his or her tax liability to the lowest amount allowed by law. The confusion often arises because people often make the mistake of thinking that by hiring somebody to file their taxes they are engaging in proactive tax planning. However, the filing of tax returns is usually a reactive activity, not a proactive one.
Why Is Tax Planning Necessary For All Individuals?
Benjamin Franklin once famously said: nothing in life is certain, except death and taxes. The single biggest expense a person can arguably have during his or her lifetime is paying taxes. Expenses eat away at your wealth, they keep you from achieving the things that are important to you, including having enough money for retirement and providing financial security for your children’s education.
In order to build wealth, there are generally two paths towards achieving that end: controlling expenses or becoming more tax efficient. When a person tries to amass wealth, tax planning becomes ever so important. If you think about the total tax you will pay in your lifetime, including sales tax, income tax, property tax, and fees disguised as taxes, you will notice that paying taxes is one of the biggest expenses you may have in your life.
It’s no surprise that tax planning touches on all the things that are important to you. That toy you purchased for your kids, that vacation home you sold, that dinner you had with your significant other at your favorite restaurant; almost anything you can literally do that has some monetary value attached to it will likely contain some form of a tax consequence. Tax planning also provides the means for addressing your primary concerns.
One example of tax efficiency is the design and implementation of a plan that sets out to achieve financial security for your retirement needs and long-term care. Long-term care applies to those who suffer from a disability or chronic illness where there is ongoing assistance required for basic activities, such as bathing, dressing, and going to the bathroom. Most health insurance plans do not provide the means for addressing long-term care.
According to Medicare & You 2015, nearly 70% of Americans over the age of 65 will need long-term care. The average person over the age of 65 is expected to live for another 21 years. In addition, those who are over the age of 65 have a 40% chance of entering a nursing home. To address the possible concerns surrounding long-term care, there are vehicles our firm can implement by using tax efficient methods in order to alleviate this concern for our clients.
Tax efficiency can also be a critical tool for providing for your children’s educational expenses. College education, in aggregate, can be very expensive. This is true even if your children attend community colleges or other institutions that do not cost as much as private institutions. With proper tax planning, young children’s education can be provided for, in some or large part, depending on the financial status of their parents. Therefore, we can implement various methods, which can ease the tension surrounding your children’s educational expenses.
It’s of common knowledge that student loan debt is a financial burden for young college graduates and it will likely continue to be so, since there is no indication that colleges will some day become tuition-free. When you combine student loan debt with other debts, such as mortgages and credit card debt, any amount of relief you can provide for your children in advance may have a consequential effect on their lifestyle.
How Do We Design The Most Tax Efficient Plan For You?
Our task is to find ways to arrange the finances of our clients in order to limit their tax liability and at the same time address the critical issues they hold dear to their hearts. Whether you are concerned about securing your retirement benefits, providing for your children’s education, or engaging in some form of charitable planning, our team can find a way to address your concerns.
Our firm collaborates with different professionals in order to clearly understand your overall situation. We look at your short-term, medium, and long-term horizon in order to design and implement the structures and techniques that can help you achieve your goals and address the most important concerns facing you and your family.
Important Note: Chilingaryan Law or its affiliates are not rendering legal or tax advice by providing the content above. No attorney-client relationship is formed based on the information provided above. The above content is designated only for educational use. Accordingly, Chilingaryan Law assumes no liability whatsoever in reliance to its use. Additionally, certain changes in law may have an effect on the legality of the information provided above, and certain circumstances of the reader may vary the applicability of the above content to his or her situation.