Tax planning is the optimal and legal management of tax matters. It is considered the use of legal and legitimate tools to reduce the tax burden on individuals or legal entities.

The application of proper tax planning represents an essential mechanism for organizations. Our associate lawyer, Adalicia Torres, was invited to the Radio Femenina program, “5 Minute Legal,” to discuss this topic in more detail.

“In contrast to tax evasion and tax avoidance, tax planning is entirely legal as it leverages resources and/or benefits created by the law itself to generate and ensure savings for the taxpayer,” emphasized Torres.

According to our specialist, tax planning is not just about implementing mechanisms to reduce the tax burden; it should be aligned with the company’s goals to achieve objectives such as business growth and cost reduction.

“It is an exercise to ensure that a business’s tax regime is implemented, and the legal rights of taxpayers are in optimal conditions. When there is no planning, taxes are overdeclared, and sometimes fines or interest payments are incurred,” stated our associate.

To perform proper tax planning, our expert explained that one must understand the economic activity of taxpayers to know how taxes are generated. Based on this knowledge, decisions can be planned internally, whether they involve investments, sales, personnel selection, and more.

Secondly, Torres recommends researching a company’s tax reality as it can provide insight into how tax obligations are met, what the tax burden is on the company’s operations, and whether there is an opportunity to optimize the tax burden.

Finally, tax planning should be considered and implemented in conjunction with the financial and operational planning of the company. “If a business intends to make an investment, the tax effect should be evaluated and adapted to optimize it,” Torres said during the radio interview.

During the interview, our associate compared tax planning to other activities such as tax avoidance, which is a practice to reduce or avoid tax payments by exploiting gaps in regulations or interpretations that deviate from the purpose of the law. Meanwhile, tax evasion involves concealing information and providing false information.

“In other words, a company or individual uses regulatory gaps or interpretations that deviate from the purpose of the law to reduce their tax obligations,” mentioned our tax law expert.

If you have more questions about this or other topics, you can contact us through our social media channels or by visiting our offices located at Cuscatlán Street, #4312, Colonia Escalón, San Salvador, El Salvador.