The Golden Rules of Tax Planning

It is true that utilizing the proper tax strategy can save thousands of dollars. Moreover, having a basic understanding of tax planning can provide you with more opportunities to close real estate transactions. However, it’s also important to realize that ‘tax planning’ comes with a cost. A taxpayer needs to keep good records, perform basic bookkeeping, and essentially be committed to the extra administrative work tax planning may involve. There are also, of course, the extra costs of professional services and the tax return compliance that may be required on a regular basis. But again, the benefits can be substantial if a taxpayer is committed to the process.

Over the many years, we have come to recognize various key points or ‘golden rules’ of tax planning. We truly hope they are of use to you in your future tax, business, and estate planning.

They are as follows: 

GOLDEN RULE #1

Make sure to approach your tax planning with a comprehensive approach. Coordinate your business, asset protection, and estate planning with your tax plan. It is easy to implement a business entity, but don’t do so in a vacuum. The real benefits lie in the integrated plan looking at all potential costs and benefits. 

GOLDEN RULE #2

The IRS will not treat every purchase and sale of asset classes the same way when it comes to reporting a transaction on your tax return. Make sure to spend a little time reviewing the tax ramifications, and if you are using the right strategy and correct entity for the type of transaction you are undertaking. 

GOLDEN RULE #3

Beware of the one-size fits all approach. Many promoters try to sell ‘packages’ or ‘designs’ for the masses based on fear tactics and half-truths. Take comfort in the fact that every taxpayer is different and a little individualized planning can save thousands of dollars in unnecessary administrative costs and potential negative tax consequences. 

GOLDEN RULE #4

It is critical to find a good tax practitioner that is in alignment with your risk tolerance, understands the business you are in, is willing to coordinate your tax planning with your legal planning, and most importantly takes the time to strategize and explain the approach you are taking without talking down to you. Interview and experiment with different professionals until you find the office that fits your needs.

GOLDEN RULE #5

Remember to continue to learn and understand the basics of tax planning. You will be better able to guide and instruct your advisor on the plan you are most comfortable with, better implement a bookkeeping and administrative process, and ultimately save more taxes, time, and professional fees.