What is tax planning, and how is it related to savings and investment planning?

Question

What is tax planning, and how is it related to savings and investment planning? Tax planning involves evaluating your current and projected earnings and developing strategies that can legally and/or your tax liability As it is currently written, the U.S. tax code recognizes several types of taxable income, including: .Active, or . Passive income . Portfolio, or . Tax-deferred and/or tax-free income income ,income Tax planning is closely related to savings and investment planning, because tax-reducing strategies often involve the use of tax-deferred or tax-free investments Tax-free investments are so called because the interest or other income paid to their owners is federal, and, perhaps, state taxes. Owners of tax-deferred investments, on the other hand, are allowed to paying taxes on any returns generated by the investment. What is employee benefit planning? Employee benefit planning involves selecting, coordinating, and managing employer-provided compensation that the form of cash payments, such as wages, salaries, and commissions These benefits can include sick leave, vacation, and personal time; life, health, and disability insurance; tuition reimbursement programs; pension, profit-sharing, and (FSAs) for retirement plans; and flexible spending accounts care and health care expenses Which of the following are tasks included in the process of employee benefit planning? Check all that apply Ensure the availability of a minimum necessary level of protection and coverage should you or your spouse lose your employer-provided benefits Select the most appropriate benefits and plans Determine the best investments to make Coordinate self-purchased policies and coverages with benefits provided by your and your spouse's employer

Explanation / Answer

Tax planning involves evaluating your current and projected earnings and developing strategies that can legally minimize the amount of taxes paid and/ or reduce your tax liability.

The U.S.tax code recognizes several types of taxable income including

1. Active or Earned income - Type of taxable income which includes the actual involvement if a business. It includes salary, wages, tips, commission.

2. Passive income-It is the aggregation of the investment income such as rental income, royalties and intrest. If you own a rental house, the income generated from the rental house is considered as passive income.

3. Portfolio, or capital gain income. It includes capital gains, intrests, dividends and royalties. The activities that can generate thumis type of a income are trading stocks, bonds, mutual funds, treasury bills, currencies etc., trading real estate or any othet asset.

4. Tax deferred and /or tax free income

Tax free investments are so called because the intrest or other income paid to their owners is exempt from federal and perhaps, state taxes.

Owners of tax deferred investments, on the other hand are allowed to postpone paying taxes on amy returns generated by the investment.

Employee benefit planning involves selecting, coordinating and managing employer provided compensation that can be provided in the form of cash payments such as wages, salaries and commissions.

These benefits can include sick leave, vacation, and personal time, life, health and disability insurance, tution reimbursement programs, pension, profit sharing and contribution to retirement plans and flexible spending aacounts for qualified dependent and child care and health care expenses.

Employee benefit planning process includes

1. Reviewing current programs

2. Understanding long and short term goals

3. Undetstanding spending expectation and budget limitations.

4. Employee benefit package that protects and reward employees

The tasks included in the process of employee benefit planning-

1. Ensure the availability of a minimum necessary level of protection

2. Select the most appropriate benefits and plans

3. Coordinate self purchased policies

retirement plannin

To achieve the best result it is critical that you begin your retirement planning is to sasave for your retirement. Most americans dont start thinking about retirement untill well into their 50s. In general at sometimes in my early 30s start addressing your financial planning

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