tax planning is the process of looking into different options so one can determine when, how, or whether to conduct personal transactions that in effect will reduce taxes, if not totally eliminate them. If you want more information how to do this right, read on and learn.

Normally, a taxpayer has the option and power to complete a taxable deal by more than a single method. Choosing one that will subject him or her to less tax isnt going against the constitution. In fact, the law backs it up. This means that its OK to look for ways on how to lower your taxes. You can even avoid some of them if you want.

Now, hold on a second. Dont get the idea that tax evasion is right, OK? Remember that the word avoidance has a completely different meaning with the word evasion. To avoid paying taxes, you come up with legal and sensible ways on how to cut down the total amount you have to pay. To evade though, is to reduce the amount by concealing some details deceitfully. That said, you can gather that what makes an evader is his or her fraudulent intent on paying (or not paying) taxes.

The following are the most common signals of evasion:

1. Failure to include some substantial amounts of income- Appropriate income tax planning involves the inclusion of ALL the income you receive at a particular tax period. If you fail to report some of them, like a shareholder omitting his dividends, you may likely rouse suspicion from authorities.

2. Irregularities in accounting- A personal tax planning method should involve a clear-cut record of your financial statement. Any irregularity such as inadequate data or amount discrepancies may cost you your reputation.

3. Improper deductions on returns- Staggering as it may be, some people alter or even create fictitious details to chop off their taxes. For example, some employees overstate their travel expenses to get a cut, or, some claim to have contributed on a charity even if they havent. If you are claiming for some exemptions, you should have verifications to back your claims up. Otherwise, you may be alleged of fraud.

4. Improper allocation of income-There are instances when people allocate their revenues to those who belong to the lower tax bracket, like incorporators distributing income to their children. While this may seem OK, its not totally honest.

There are various ways to go about tax planning especially if you are a small business entrepreneur. Strategies can be applied to both your individual tax situation and the business itself, but the general goals would be: to reduce the amount of taxable income, to lower the tax rate, to claim any possible tax credits, and to control the time when a certain tax must be paid.