TRADITIONAL TAX PLANNING TECHNIQUES
Traditional tax planning is equivalent to tax avoidance with the main purpose of legal reduction of tax liability. Following are the major issues regarding this type of tax planning.
Tax Planning Principles: Jones and Rhoads-Catanach (2004) have suggested following four tax planning principles:
Ž Taxes decrease if income earned by entity is subject to a low rate.
Ž Taxes decrease if payment can be deferred to a later year, because tax deferred is tax reduced.
Ž Taxes decrease if income is generated in a low rate jurisdiction.
Ž Taxes decrease if income is taxed at a preferential rate.
For planning purposes only relevant rate is rate at which the transaction will be taxed, i.e., marginal rate – rate at which next Taka of income will be taxed. The marginal tax rate may change as follows: (a) higher bracket due to more income, or (b) law may be changed and a new rate is prescribed.
Factors Affecting Tax Planning: According to Jones and Rhoads-Catanach (2004), following are the factors affecting tax planning:
• Which entity undertakes the transaction?
• Over what period does a transaction take place?
• In which jurisdiction does the transaction take place?
• What is the character of the income?
The above factors have been briefly discussed below.
Ž Choice of Entity: The first factor to affect the tax planning is the entity undertaking the transaction. Different entities have different tax rates. Pass-through entities (sole-proprietorship) allow shifting income to owner and one level of tax. Non-pass-through entities (companies) are subject to double taxation, once at corporate level and then again at the shareholder level.
Ž Period of Transaction: Tax planning is affected by the period over which a transaction takes
place. Tax deferred is tax saved based upon time value of money. Common techniques are to accelerate deductions (e.g., following accelerated depreciation) and to defer income (e.g., through installment sale). A taxpayer has to consider when taxes are actually paid (e.g., quarterly estimates versus end of year computation).本文来自优.文,论-文·网原文请找腾讯752018766
Ž Tax Jurisdictions: The third factor by which tax planning is affected is the jurisdiction in which
the transaction takes place. Tax liability depends whether the income will be accrued in foreign country (subject to exemption or tax relief) or Bangladesh or whether the income will be earned by establishing the entity in a low tax zone or a high tax zone.数据结构课程设计-joseph环 -
Ž Character of Income: The final affecting factor is the character of the income. Depending on the
income character, certain types of income are exempted fully or partially. Certain types of income are taxed at preferential rates (e.g., capital gain on transfer of stocks and shares of private limited company taxed @ 10%, dividend income from shares taxed to companies @ 15%).
A final tax liability is a function of three variables: the law, the facts, and the administrative (and sometimes judicial) process. If any taxpayer is not satisfied with either the law or the administrative and judicial processes, there is relatively little that s/he can do (unless, of course, s/he has enough money and clout to get a tax law change). The facts, however, are generally amenable to modification. If a taxpayer is wise enough to understand when and how to modify them, s/he may very well reduce
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