Page 573 - Introduction to Business

CHAPTER 15 Personal Financial Planning 547

Tax Planning

LEARNING OBJECTIVE 7
Identify the goals of tax planning.
Benjamin Franklin said that two things are certain: death and taxes. Nearly every-
one faces the income tax, whether as an individual concerned with this major
deduction from pay or as a businessperson concerned with this significant expense
to the firm. You should pay what is legally due but not a dollar more, and it is likely
that your payment can be reduced if you plan and organize. Planning purposefully
and keeping thorough records helps you in nontax ways also.
Most Americans must file a tax return each year and must maintain accounting
records to supply data for the tax return. Accounting records include the taxpayer’s
customary financial records, as well as specialized records and data as may be nec-
essary to support entries on a tax return. The law does not specify the type of
records a taxpayer should maintain, so they need not be elaborate or formal. A sim-
ple system should facilitate prompt entries as income is received and as payments
for deductible expenses are made.
Failure to maintain adequate records may increase your tax liability and may
result in penalties. The Tax Court sustained a negligence penalty against a taxpayer
who claimed certain business deductions but did not have the necessary
documents to back them up. The taxpayer had maintained only a partial log for
business expenses, and the court decided that some of the claimed expenses were
questionable.
Keep copies of completed tax returns in a safe place. Taking time to accumulate,
record, summarize, and retain the appropriate tax information can help reduce
your taxes and increase your personal wealth. There are many home finance soft-
ware packages that will interface with tax preparation software. This is a good way
for some people to track expenses, keep a budget, and maintain tax information.
On a final note, keep in mind that tax laws change. Whenever this occurs, review
the changes to see how they affect your current situation and your plans for the
future.

reality Why should you do tax planning?
CH ECK

Ethics of Financial Planning

LEARNING OBJECTIVE 8
State the ethical issues associated with personal financial planning.

Whatever the source of ethical values, whether from religious principle, history and
literature, or personal observation, there are some basic ethical guidelines that are
essential to civilized society. No nation survives for long without citizens who share
common values such as courage, devotion to duty, respect for other people’s lives
and property, respect for the law, and a willingness to sacrifice personal interests for
a greater cause. When considering both personal and social responsibilities, the fol-
lowing are five ethical uses for money: giving, repaying debts, paying taxes, provid-
ing for one’s family, and planning for future needs. These activities require wise
money management and financial planning. In practicing these uses of money, one
should feel that his or her actions are carrying out ethical duties and not merely
pursuing self-interest.

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