The main goal of tax planning is to achieve tax efficiency for taxpayers and minimize tax liability. Minimizing the taxpayer's tax liability provides them with more money, which can be used for investment or expenses. Therefore, tax planning involves applying a financial strategy that minimizes taxpayers' tax liability while maximizing their after-tax cash flow. Maximizing after-tax cash flows significant benefits to individuals and businesses, including realizing effective financial planning. After-tax cash flows refer to the funds available after the taxpayer has paid all the taxes. After-tax cash flow is computed by adding the taxpayer's net income with the value of all non-cash expenses.
Higher cash flow after taxes is used as a measure of financial performance and business health. Therefore, organizations ensure they apply an effective tax planning strategy to realize efficiency in the business and management of resources. Through tax planning, businesses lower their taxable income and tax rates giving them greater control over the business resources and finances. For individuals, maximizing after-tax cash flows increases the ability to invest, manage assets, and contribute to retirement plans (Kagan, 2020). Individual taxpayers may save through a retirement plan to reduce their taxes and retain their wealth and pass it on to their families.
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Effective tax planning considers the gross income, expenses, assets, investments, and deductions to determine the best financial outcomes for taxpayers. Effective tax planning ensures success in financial planning for businesses and individuals. Small businesses tend to benefit more from minimizing their tax liability by realizing opportunities for growth and sustainability in the ever competing markets. Business success includes profitability and growth, while individuals realize more financial freedom. Therefore, the main goal of effective tax planning is to maximize the after-tax cash and minimize the taxpayer's tax liability.
References
Kagan, J. (2020, April 7). Learn About Tax Planning . https://www.investopedia.com/terms/t/tax-planning.asp.
