Tax Planning Techniques

The objective of tax planning is to pay the lowest tax legally permissible consistent with your overall financial planning objectives. SCM considers the tax effect of a proposed action and develops sound, comprehensive strategies to address your tax requirements.

While familiarity with state and federal tax laws helps SCM advise you, it is SCM’s policy to seek outside tax expertise for the final analysis.


Recordkeeping saves time during tax preparation and ensures the availability of deduction support information for filing returns. The IRS has become more stringent about its requirements so records should be carefully maintained and kept up-to-date to minimize conflict. Requirements include old tax returns, accurate summaries of self-employment earnings, cost basis information of investments and receipts for expenses.

Tax Planning Paths

Postponing taxes is still an important tax-saving technique of Tax Planning. Reasons include

  • chances of lower tax brackets in the future
  • can’t pay entire tax burden
  • increase of income through invest returns
  • payment of taxes with cheaper future dollars
  • avoid paying tax

Proper timing of the receipt of income and the payment of expenses can save taxes, especially if your income is on the border of two tax brackets.

Estate Taxes

Estate taxes are not income taxes but excise taxes on the right to transfer property. The burden of payment rests on the donor and is not included in the taxable income of beneficiaries. The rules regarding trusts have tightened and the tax rate has been lowered so trusts have become less popular for income splitting over the generations. A separate generation-skipping tax is imposed when the taxable distribution goes to a generation two or more tiers below the grantor.Tax Planning

Tax Audits

Careful assessment of deductions will help avoid audits and includes key areas

  • P&C loss
  • auto and entertainment
  • cash contributions
  • child care

The IRS audits about two percent of returns. It looks at cities and tax payers in the highest tax brackets. The type of audits include mail audits, office audits, field audits and criminal audits. When faced with an audit there is no reason to give info while your tax records should be all in order.

Common Situations

The Alternate Minimum Tax (AMT) is a separate and parallel tax system directed at taxpayers who pay little or no regular tax because of the use of certain deductions. Although the rules are straight forward, many clients are confused about the tax effects of the sale of a home when Tax Planning. Clients who live abroad may be able to take advantage of special tax regulations. When a client dies, the decedent’s estate becomes a new taxpaying entity and must file a tax return for the income it will generate.

For other Financial Planning topics, visit our Financial Planning page.