In the realm of business and personal finance combined, accounting and tax planning are intertwined in an intricate dance. The ability to understand the story these numbers tell about your financial health isn’t just about the numbers.
To start, you must know that the language of business is accounting.
Encompassing the process of recording, classifying, interpreting and communicating financial information, accounting is the data collected that forms the backbone of the decision-making to
help businesses map their financial trajectory and plan for future growth.
Tax planning, on the other hand, is the analysis of a financial situation or plan from a tax perspective.
The purpose or objective of tax planning is to ensure tax efficiency – meaning, so you pay your fair share of taxes, not a penny more or less. The planning of taxes is the very path through which we can understand the tax implications of your financial decisions so you can make the most of the tax benefits, deductions and allowances available to you.
A strong grasp of accounting principles is certainly required for truly effective tax planning.
For example, fully comprehending the difference between cash-based and accrual-based accounting holds potentially significant tax implications. One significant thing to note is that accrual-based accounting income and expenses when incurred, but not when cash actually changes hands. Having a more comprehensive understanding will indeed help to plan income and expenses more strategically to better manage tax liabilities.
As tax laws are both intricate and continually changing, having someone in your corner who possesses an intimate understanding of the latest updates – such as changes in tax slabs, new deductions, or rule revisions – can give you assurance in navigating them efficiently.
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