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Seven Reasons Why You Should Engage In Year End Tax Planning

For most people, year end is the busiest time of all. There are special programs to attend, parties to throw, gifts to buy and the ever-present round of deadlines to meet.

Facing time pressures, some people are tempted to bump year and tax planning to the bottom of their to-do lists or skip it altogether. But while postponing planning may seem to make sense at the moment, it could be quite costly in the end.

You should take time out of your busy schedule to engage in year end tax planning. Here are seven important reasons why.

Reason #1: Tax planning offers one of the best returns on investments.

Whether investors sink their money into mutual funds, the stock market, oil futures or real estate, the results they desire is a good rate of return on the time and money invested.

Tax planning is also an investment. You make a certain investment of time or money in tax planning, and expect to receive a return (tax savings) down the road.

Reviewing and adjusting your tax strategies at year end could save you thousands of dollars , or even more (especially when you consider estate taxes).

Reason #2: Tax planning can save you money by substantially reducing your tax bill.

Many people who want to have larger financial nest eggs try to increase their net worth by boosting income. While there's nothing wrong with an income-building strategy, you may be able to accomplish some of the same results simply by preserving the income you already have.

Reason #3: Tax planning can free up more cash for you now by deferring your tax liability:

It's always great when you can reduce your tax bill, but slicing Uncle Sam's take is not the only benefit derived from early tax planning. Through a successful deferral strategy, you may postpone paying the taxes by a year, years or even decades. In the meantime, you earn interest on that money.

Reason #4: Only regular planning can maximize your savings by keeping your tax strategies up to date.

It doesn't seem likely that Congress will ever stop tinkering with the tax law. As a result, the best strategies for tax reduction are also evolving. The only way for you to take advantage of the latest tax-saving opportunities is to periodically review and update your tax strategies.

Reason #5: A periodic review and update of your tax strategy is absolutely necessary in order to leave the maximum amount to your heirs.

Estate tax horror stories are abundant, and with good reason: Not many mistakes can be more costly than a lack of estate planning.

Unless you plan properly, the IRS can take up to 55% of the value of your estate. Hefty estate tax bills have forced the sale of more than a few family businesses and prized possessions.

The best estate planning strategies are subject to change along with the tax laws. As a result, it's necessary to review your estate planning strategy regularly to ensure that it takes advantage of the latest available planning options.

Reason #6 Tax planning (or lack of it) can make or break your business.

Business owners are faced with a variety of tax issues that include choosing a business structure, planning for succession and maximizing depreciation expense.

Are you making the most of your travel and entertainment expenses? Taking the maximum number of credits and incentives allowable - under the latest version of the law? Minimizing your state and local as well as federal taxes?

Reason #7: Tax planning is one of the keys to a successful investment strategy.

In choosing a portfolio, investors must consider more than the current investing climate - tax issues are also an important consideration.

Current tax rules for capital gains tax, any changes on the horizon, and the pros and cons of tax advantaged investment vehicles should all be considered. Insight into the tax impact of any investment strategy may make the difference between a great decision and a poor one.