- Okay, now we're going to talk about tax planning.
Let's begin with a quote.
This is from US Judge Learned Hand in 1947.
"Over and over again,
Over and over again courts have said
"courts have said that there is nothing sinister
that there is nothing sinisterin so arranging one's affairs
"in so arranging one's affairs
"as to keep taxes as low as possible.
as to keep taxes as low as possible.
"Everybody does it, rich or poor, and all do right,
Everybody does it, richor poor, and all do right,
"for nobody owes any public duty
for nobody owes any public duty
"to pay more than the law demands:
to pay more than the law demands.
"taxes are enforced exactions, not voluntary contributions."
Taxes are enforced exactions,not voluntary contributions.
Here's another quote,
this one from Supreme Court Justice
John Marshall Harlan II in 1965.
"The tax law exists as an economic reality
"in the businessman's world,
in the businessman's world,
"much like the existence of a competitor.
much like the existence of a competitor.
"Businessmen plan their affairs around both,
Businessmen plan theiraffairs around both,
"and a tax dollar is just as real
and a tax dollar is just as real
"as one derived from any other source."
as one derived from any other source.
Now, is it ethical to arrange one's affairs
so as to keep taxes as low as legally possible?
Well, of course it is.
We can refer to the Goldilocks Principle of Income Taxes.
You don't want to pay too little income tax.
You don't want to pay too much income tax.
Pay just the right amount of income tax.
Now, we're going to talk about tax planning.
Tax planning is structuring your activities
to pay the minimum amount of tax
that is required by law.
Not too much, not too little, but just right.
We'll talk about basic tax planning strategies.
It turns out that all complex tax planning strategies
are a combination of three basic strategies.
First, shifting income from one time period to another.
Usually, taxpayers wish to delay the taxation of income.
That's the reason for the shifting.
Second, shifting income from one pocket to another.
Taxpayers wish to shift income
from a high tax state or country
to a low tax state or country.
And the third common tax strategy
The third common tax strategy
is to change the character of the income,
or the rate at which income is taxed.
Now, we've previously discussed
the difference between ordinary income
between ordinary incomeand capital gains income.
and capital gains income.
Capital gains income is typically taxed at a lower rate,
so transforming ordinary income into capital gains income
is another basic tax planning strategy.
We will talk about each one of these three
of these three basictax planning strategies.
basic tax planning strategies.