What is Tax Planning?

Definition: What is Tax Planning?

Tax planning is a strategic process in which a certified accountant and other professional bodies help you organize your business, income, and expenses in a legal and proper manner — to reduce your tax payments. It is not a scheme, not manipulation, and not tax evasion. It is the intelligent use of existing rules in Israel's tax system.

Legal tax planning is conducted before you pay taxes, as opposed to planning after taxes — where you are already dealing with a legal obligation. The idea is to plan your activities, your business structure, your expenses, and the timing of income and expenses, to achieve the best outcome for you.

Why is Tax Planning Important?

When you are self-employed, an independent contractor, or a business owner, you pay taxes on multiple fronts: income tax, VAT, national insurance, continuing education funds, and more. Each is determined by law, but within the law there is flexibility — different scenarios, conditions, deductions, and various ways to organize your activities. Legal tax planning helps you navigate this flexibility in a lawful manner.

Tax Planning versus Tax Evasion

It is important to distinguish: Legal tax planning is the use of existing rules to reduce your tax burden. Tax evasion is concealing income, filing false reports, or exploiting gaps in the law in a way that does not align with the legislator's intent. Legal tax planning is lawful and ethical; tax evasion is a legal and fiscal problem.

As a certified accountant, Ben Or Kok assists only in legal tax planning — and at every step, we ensure that the strategy complies with the rule of law and the spirit of the law.

How Does Tax Planning Work?

Tax planning is a collaborative process between your accountant and you. It involves several steps:

1. Review of Your Current Situation

Your accountant examines your income, expenses, business structure (exempt business owner, licensed business owner, company), and your tax obligations. They gain a comprehensive understanding of your financial data.

2. Identification of Legal Opportunities

Based on the review, your accountant identifies legal options to reduce your tax burden. These may include: deductible expenses you can claim, a more efficient business structure, timing of income and expenses, or utilization of tax benefits available under law.

3. Presentation of Scenarios

Your accountant may present you with several scenarios: "If you change your business structure this way, the impact will be..." or "If you allocate expenses in this manner, you save...". Each scenario is explained clearly, including the risks and conditions involved.

4. Selection and Implementation

You choose which scenario best suits you — based on your business needs, risk tolerance, and economic impact. Your accountant then helps you implement the plan correctly in your reports, filings, and day-to-day operations.

5. Monitoring and Updates

Tax planning is not a "one-time" process. When your business changes, when tax laws change (and they do), or when your financial data changes, your tax plan needs to be updated. A good accountant will update you when new opportunities arise or when the old plan is no longer relevant.

Who is Tax Planning Suitable For?

Legal tax planning is suitable for anyone who has income or a business:

• Self-employed persons and business owners: Typically, a tax-exempt business operator or registered business operator can benefit greatly from tax planning — by properly documenting expenses, selecting an optimal business structure, and filing accurate reports.
• Company owners: Private limited companies and other business entities can use tax planning to manage corporate income tax, dividend tax, director compensation, and more.
• Employees: Even salaried employees can benefit from tax planning — through eligibility for tax refunds, professional expenses, or tax deductions for charitable contributions.
• E-commerce businesses and startups: Digital businesses, startups, and technology companies may have complex tax structures — professional tax planning is essential.
• New immigrants and foreign residents: Those with foreign income or who are new to Israel require specialized international tax planning.

When Should You Start Tax Planning?

The best answer: as early as possible. If you are just starting a business, tax planning from the outset can save you considerable trouble down the road. If you already have an established business, it is never too late to begin. Even if years have passed, tax planning can help you in the coming years and may result in tax refunds for previous years (under certain circumstances).

Examples of Legal Tax Planning

To better understand, here are some examples of legal tax planning:

Example 1: Exempt Practitioner Investing in Equipment

Suppose you are an exempt practitioner (for example, a consultant) and you purchased a computer and office equipment worth approximately 5,000 shekels. In tax planning, your accountant will help you recognize these expenses as legitimate business expenses, thus reducing your taxable income. This is legal and lawful.

Example 2: Licensed Practitioner Deferring Income Between Years

A licensed practitioner who anticipates a year with very high income may, through tax planning, consider with their accountant how to time invoices or work to spread income across two years. This can reduce the total tax amount (due to tax brackets). This is legal, provided it reflects the business reality.

Example 3: Company Distributing Director's Salary and Dividends

Owners of a private company may consider tax planning in which they pay themselves partially as director's salary (which is a company expense) and partially as dividends (which is profit distribution). Each is treated differently for tax purposes. This planning, when legal, can reduce the overall tax burden.

Example 4: Employee with Professional Expenses

An employee who has professional expenses (for example, courses, books, equipment) may be entitled to a tax deduction on these expenses, subject to certain conditions. Tax planning will help them identify these and obtain the appropriate refund.

Tax Planning at Ben Or Kook Accountants

At Ben Or Kook Accountants, we specialize in legal tax planning for business owners, self-employed professionals, companies, and non-profit organizations. In our work, we combine:

• Experience: Our firm has been operating since 2008, with deep expertise in tax planning in Israel and evolving regulations.
• Personal Approach: Every client is unique. We do not apply "standard" planning — we examine your situation in detail and tailor the planning to your needs.
• Accounting Accuracy: Our tax planning is based on current laws and regulations. Every proposal is carefully reviewed to ensure it is legal and compliant.
• Digital Service: We use digital tools to manage your data securely and efficiently, and to be available to you at all times.
• Ongoing Support: Tax planning is not a one-time engagement. We monitor your business, update the planning when needed, and inform you of new opportunities.

If you are a business owner, self-employed professional, company owner, or employee seeking legal and professional tax planning — Ben Or Kook Accountants is here to help you. We serve clients in Petah Tikva, Ramat Gan, and throughout the central region.