Tax implications refer to the effects that financial decisions or transactions have on an individual's or business's tax obligations. These implications can arise from various activities, such as earning income, selling assets, or making investments. Understanding tax implications helps individuals and businesses plan their finances effectively and avoid unexpected tax liabilities. For example, selling a property may result in capital gains tax, which is a tax on the profit made from the sale. Similarly, contributions to retirement accounts like 401(k) plans can provide tax benefits, reducing taxable income for the year. Being aware of these implications is crucial for effective financial planning.