A rational taxpayer seeks to ascertain his or her situation and purpose, to identify risks, and to choose from the options permitted by law the one that best meets the taxpayer’s goals as a whole. This is possible through tax planning. By staying within the legal framework, a taxpayer can choose the one with the lowest tax burden from among the several permitted options. It should be noted, however, that tax planning may also have another purpose than minimizing taxes.
The tax planning of self-employed entrepreneurs consists of both the entrepreneur’s own personal taxation and his or her company’s taxation. In this respect tax planning often involves calculating, managing and optimizing the overall tax burden. The actual tax planning is influenced, for example, by the entrepreneur’s need for money and goals in both short and term, and the construction of the optimal way to withdraw and distribute funds.
In cross-border situations, taxpayers aim to avoid double or even multiple taxation and possible conflicts of interpretation through tax planning and to achieve a setup which is legit and sound in terms of tax. International tax planning depends for example on the taxpayer’s state of residence, the state in which the business operated and conducted, the selected form of business, how the activity is financed and how the profits can be transferred and repatriated.
Tax planning does not involve or mean tax evasion or tax fraud, which are both federal crimes, provided that the tax planning complies with the prescribed laws, there are sufficient business grounds for a possible arrangement and the purpose of the arrangement is not to avoid taxes. Thus, the purpose of tax planning is not to evade or avoid tax. In some situations, however, the demarcation between acceptable tax planning and prohibited tax evasion may be open to interpretation.
Successful tax planning considers the taxpayer’s needs and circumstances as an overall evaluation. It is therefore almost impossible to give any general instruction or advice as these are done on a case-by-case basis. The best result is achieved by turning to a competent tax expert and planning the actions together.
