A good knowledge of the tax law, its developments and sources is extremely important for business tax planning. The primary purpose of any tax planning is to mitigate the taxpayer’s tax liability.
This principle does not necessarily mean that a course of action selected for tax purposes must produce the lowest tax bill under the circumstances. Tax minimization must be considered in the overall economic goals and legitimate business goals of the entity.
Another purpose of tax planning is to reduce, defer or eliminate an entity’s tax bill. This goal aims to accomplish one or more things: Some options of planning may include eliminating the tax entirely, or in the current year, or in future years. Planning may also include deferral of income, and the formation of additional entities, among other things.