Tax Planning Essay Example | Topics and Well Written Essays - 1500 words

tax income Planning - Essay Example revenue escape is the process of planning business traffics in a manner that leg whollyy minimizes the amount of revenuees due. The quadruplet maxims of assess planning are built around the premises of armed serviceing businesses work around tax liabilities. 1) Businesses turn over profits to entities that fall within lower tax rates. Reducing tax liabilities set up be accomplished through both shifting income to lower-tax rate entities and shifting deductions to higher-tax rate entities. 2) Shift rateable income to a later time period as, in present value terms, tax costs descend and cash flows increase when the liability is deferred to a later taxable year. This should be done taking into amity the opportunity costs involved due to shifting income to another year as well as the possibility of tax rate changes in the following year. 3) Due to the differences in state and country laws, it is doable to gain tax advantage by shifting incom e to a lower-rate tax jurisdiction. This opens up planning opportunities of tax planning for companies which have global presence. 4) By shifting income from business activities to more tax-favored instruments like government bonds, companies give the sack take advantage of preferential tax rates. Businesses, therefore, arrange transactions in such(prenominal) a trend that income is shifted to heads which are subject to preferential tax rates. Tax planning thus requires the researcher to consider all fields of income generation and the entity, jurisdiction, time and character of income.An important aspect of tax planning is tax research. Tax research is required to determine the tax consequences of a transaction, either before or after the transaction is done. In case of a closed-fact transaction, the facts surrounding the transaction are recorded and hence, can no longish be subject to the clients control. Conversely, an open-fact transaction is one which the business is propo sing to undertake and hence is subject to the clients control. In such cases, a tax adviser can help create facts to support the transaction that will help them influence the tax consequences of that transaction. The role of the tax researcher is to determine the optimal business decisions that its client unfaltering should make, as they relate to tax. When the tax consequences for a firm differ among decision alternatives, tax researchers help to name the most optimal course of action for management to make in order to maximize their after-tax income.Tax research is a six step process that encompasses all activities required by a researcher to understand the transaction and gather data to support it. The first step involves a thorough understanding of the business transaction and the facts surrounding it. It is important for a tax researcher to acquaint himself with the non-tax features of the transaction before moving onto the tax implications. Once the researcher is done analy zing the non-tax features of the transaction he moves onto the second step, which is identifying the tax issues suggested by the transaction. The identification of issues lead to formulation of tax research questions. The third step involves the most important gene of tax research, which is locating the relevant authority to