Tax planning is the most important aspect of financial health and planning. Any individual or family that works and earns money should start planning their finances. Tax planning a taxpayer reduces his liability towards paying takes. This can be done by making use of deductions available in the country. One other reason why you need to file taxes is to contribute to a nation’s development.
Read through the article to learn more about the meaning of tax planning, the importance of tax planning and its benefits.
What is tax planning?
The concept of tax planning is not a new subject. It has been in existence for a long time. Every country has a tax law in place, and every income earner should file his taxes. Those of you who don’t know what tax planning is; this article is right for now. The article will also discuss points on the importance of tax planning for everyone.
Tax planning meaning is a process of activity undertaken by every individual who makes an income. The planning is done to reduce the amount of tax to be paid by the taxpayer. A taxpayer makes the best use of all available deductions, allowances, rebates etc. Tax planning is very advantageous to both payers as well as the nation. For payers, it helps in better management of money and for national economic development.
What are the different types of tax planning?
Tax planning is of different types. The main types of tax planning are as follow:
- Short term tax planning: term tax planning: Under this type of tax planning, it is done annually or at the end of a tax year. The main aim of the short term tax-planning is to complete limited objectives. The best part of this tax planning is that it includes no commitment.
- Long term tax planning: On the other hand, there is another type of tax planning called long-term tax planning. This type of planning is started from the beginning of the year or the end of the year. The planning continues throughout the year. Though there are no immediate benefits from long-term tax planning, it is beneficial.
- Purposive tax planning: the third type of popular tax planning is purposive tax planning. The aim of this tax planning is to take the maximum benefits offered. This type of planning is important for making the right investment plan decisions.
- Permissive tax planning: the last type of tax planning that is available is called permissive planning. This type of planning means making tax saving investment to make use of different types of concession permissible by law.
What is the importance of tax planning?
The significance of tax planning cannot be defeated. The importance of tax planning is plenty; it includes saving money in terms of returns to better estate planning. The tax returns that you get after completing the filling is very helpful. It provides information about the financial status and health of the payer.
The deductions that you avail that are permissible by law can be reviewed to make future decisions. Also filing of taxes enables a person to look for retirement plans. It allows the taxpayer to start saving money for retirement or to tax fewer retirement plans.
Also, estate planning is something that every single individual must consider. Planning of estate enables one to see the big picture in terms of financial planning. Proper and effective planning of estate with the help of tax-planning can help in lowering taxes and attain a range of goals.
What are the benefits of tax planning?
The benefits of tax planning for individuals are as follows:
- The main benefit of tax planning is that it helps in saving the amount of tax that you pay the government. This is done by availing the deductions given in the tax law.
- The next benefit of tax planning is that it helps in saving money from monthly income. In other words, it promotes a habit of saving among individuals. The amount so saved can be invested in lucrative plans.
- It also reduces the stress of uncertainty that troubles any income earner. Tax liability is something that we all have to bear. But with planning, one can make informed decisions.
- The last benefit of tax planning is it protects the taxpayer from litigation due to tax evasion.
Bottom Line:
With this, the article on what is tax planning, its importance and benefits is concluded. Paying of taxes for the income earned is mandatory. But learning tax planning and planning along with its importance, will enable a person to make wise decisions.