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Analyse This? Why all Taxpayers Should Have their Taxes Analysed?

Guest post by: Patrick Bailey

Article Overview: In this article we look at Tax analysis and the role it plays as a tool in reducing our taxes and in the whole financial and tax planning process.

As in most countries, the Canadian government gets its revenues from taxation in one form or another. Given all the taxes we pay, either when we earn or when we spend, wouldn't you agree that controlling our taxes is very important?

Today, more than 48% of all government revenues are derived from personal income taxes.

Did you know that from April to August 2011, personal income taxes revenues increased 6.5 per cent? Corporate taxes rose 6.7 per cent and non-resident tax revenues rose 6.5 per cent over the same period.

Tell me. How much did your revenues rise?

Analyse This? Why all Taxpayers Should Have their Taxes Analysed?

A considerable amount of your wealth is consumed in income taxes. If you have a job, in most cases, you are taxed even before you receive your pay cheque. Ouch!

And, what about your investments or other sources of income? Yep, they are taxable as well, sometimes even though you haven't received the funds.

The various levels of government impose taxes, seemingly at will. These taxes are generally not voluntary, but are mandatory and if not paid can have severe consequences.

Unfortunately, all too often, we accept, albeit grudgingly, that these taxes are inevitable and we often pay without taking careful consideration to how much of our wealth potential is being lost to taxes.

The importance of an assessment or tax analysis of your situation should never be over looked nor understated. This is an essential first step if you want to reduce your taxes.

Webster's dictionary describes Tax as

1. A charge imposed by authority upon persons or property for public purposes.
2. A heavy or onerous demand

Analysis is the breaking down of a whole structure into its component parts so as to better understand the structure and the inter-relationships between the individual parts.

Tax analysis is the breaking down of a complex tax situation into its component parts so you can better understand your tax exposure.

Tax analysis plays a crucial part in assessing your tax exposure and provides a road map to avoiding or reducing your tax risks. Not only will it help you to understand how to avoid the tax traps, you will gain valuable insights as to how to increase your income tax efficiently and protect your hard earn money from the tax man.

You will also be able to more accurately predict or assess how much your tax bill will be before the end of the year.

Ever stopped to think about how much taxes you are paying unnecessarily?

As a crucial part of the financial and tax planning process, tax analysis is concerned with

• Identifying or establishing tax objectives
• Identifying and evaluating risks associated with specific tax situations
• Evaluating the tax costs and benefits of suitable alternatives that address these tax risks
• Selecting appropriate strategies and implementing them and
• Monitoring the outcomes as part of the overall process.

The Anatomy of a Tax analysis

1. Assets and liabilities assessment
2. Income sources e.g. salaries, investment income, capital gains, business income, dividends etc.
3. Expenditures, these are either discretionary and non discretionary
4. Tax deferral vehicles and tax efficient investments
5. Levels of tax deductible debt
6. Types of investments
7. Risk management

In summary a tax analysis provides a road map for a tax payer to reduce taxes while she earns, reduce taxes while she spends and guides her to strategies to protect, preserve and increase investment income in a tax efficient manner.

In a future article we will be looking more closely at each component as we delve further into the anatomy of a tax analysis

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Article Tags: money, road map, tax analysis, tax exposure, tax planning



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