tax planning

Tax planning is when a taxpayer makes use of the tax law to pay the least amount of taxes possible. Tax planning consists of the analysis of the tax payer’s financial situation in order to pay the lowest tax. Usually, tax planning consists in maintaining the taxpayer in a certain tax bracket in order to reduce the amount of taxes to be paid, which can be done by manipulating the timing of income, purchases, selecting retirement plans, and investing accordingly.

Unlike tax evasion and fraud, tax planning is not unlawful. Tax planning is based on the controlling of payment arrangements with the aim of reducing the impact on one’s finances.

See also: tax optimization

[Last updated in May of 2022 by the Wex Definitions Team