To meet your both ends meet you earn some money. Being part of the financial system and economy, the government levy a tax on you like it levy on everyone. So you have to pay some taxes. These taxes depend on how much do you earn. Like others you too don’t enjoy paying your hard-earned money to the government and wish to pay lower taxes to the government. You wish to bring down your effective tax rate lower. Is it possible to bring down the effective tax rate for you? Might be you know the answer too. My answer is yes. You can bring down your effective tax rate by proper tax planning.
Tax planning is essential for everyone. So it is essential for you too. It is important to you that you have a tax plan in place so that when filing tax returns and paying tax it is not taxing job. And you can do it with less problems and financial burdens. Tax planning does not mean that you plan about the date on which you will file the tax returns and pay the tax but it is all about something else. Tax planning means that how you will pay your taxes and how much you will be paying. This can be pre-determined by proper tax planning.
As per the tax systems in almost every country it is known to maximum of people in advance that how much they are going earn on a particular year if they are salaried person expect those who are engaged in businesses or self-employed and how much taxes they have to pay. Even people in businesses or self-employed people do have expected earnings. So it is easier for those who are employed. The government has provided some tax breaks that can be used to cut the tax payments. By doing an effective tax planning the effective taxes can be brought down significantly. There are some investments and donations that help in cutting taxes. These investment avenues are mutual funds, insurance, provident fund investments and some expenses that have been allowed as tax break under the income tax laws.
Tax planning helps in avoiding rush and chaos of the last hour. Often it happens that you end up not planning for the available tax breaks that can bring down the effective rates low in advances and end up paying higher taxes than that of the case of prior tax planning. When you go on the last date of the return filing date, you find that there are many things that are important and to save some money as tax breaks allow you are required to invest huge money in many investment avenues. This puts you on huge financial burdens if you want to enjoy those tax breaks. In case you decide to enjoy the tax breaks by investing in those allowed investment, it often happens that you end up choosing various investments for tax breaks that may not be right for your future needs. And in case where you find that you don’t have sufficient funds to save some money by investing you end up paying more taxes that you could have saved if you have planed your tax filing.
Tax planning provides you many benefits. These are as follows:
- You are forced to save some money if you want to enjoy tax breaks so higher savings by tax planning is possible.
- Lower effective tax rate when tax planning done efficiently.
- Right investment decisions leads to financial security as these investments are long-term investments.
- Adaptation to saving habits.
- You can avoid last hour chaos and rush and fines in case of late filling.
- It helps you keeping your finances out of any huge burden and strains as last hour taxpaying practices demand more money as taxes or tax breaks.
Tax planning is always a good practice for everyone as it helps in keeping tab on finances by providing opportunities for right investments sometimes even forced. It makes saving into your habit. So tax planning is always good and you should do it from first day of the year.