Tax planning is the art of investing, saving and planning to be tax efficient. If saving money is high on your priority list, you should do an analysis of your current financial situation. In Canada, the goal of a tax planning advisor is to reduce and/or defer most taxes paid by a natural or legal person over a period of time by using the fundamentals of their financial plan as effectively as possible from the point of view of ‘a tax point of view. Contributing to retirement plans are both essential to achieving your goals and financial needs.
Tax planning should be an important part of investment planning. A tax deferral strategy can be a good wealth and tax management plan. It is advantageous for an individual or business that wishes to postpone the process of having to pay taxes at this time in order to postpone it to a later date in the future. There are two advantages to defer paying taxes: it is a better financial scenario for some people who pay their taxes tomorrow rather than today, and the person also has control over when they want to pay their taxes rather than let the HMRC decide.
Taxpayers have several options for reducing their tax liabilities. Various sections of Indian income tax law provide tax deductions and exemptions, the most popular of which is Section 80C. Deposits in the Public Provident Fund, five-year bank deposits, National Savings Certificates, and investments in ELSS schemes are just a few examples. The best and most efficient way to save taxes is to create and stick to a financial plan whenever your income changes. It is also a good habit to make tax-saving investments at the start of the year rather than making hasty and often incorrect investment decisions at the end. To do so, you must be aware of all of the exemptions and deductions available to you.
There are no great secrets where tax planning and tax-cutting are concerned. The principles around which all tax-cutting strategies revolve can be reduced to six basics:
- Income distribution: Taxes for the entire family unit are reduced by dividing income among several family members or legal entities in order to have more of the income taxed at lower rates.
- Income fluctuation: Certain types of income (bonuses, dividends, and year-end payments, for example) can be shifted from one year to the next in order to tax the income at a lower rate.
- Adjusting deductions: Certain deductible expenses, like income, can be paid in one year or the next in order to maximize the tax benefit.
- Tax deferral: Investing your money in certain investments or contributing to a pension plan allows you to postpone paying taxes on some of your earnings.
What is Corporate Tax Planning?
Corporate Tax planning is a method of reducing the liabilities of a registered company. One of the most common methods is to include deductions for company transportation, employee health insurance, etc. With the tax deductions and exemptions under the Income Tax act, your business can legally significantly reduce its tax burden. The increase in the profits of a company implies an increase in the tax burden. If so, it is essential that they devote sufficient time to tax planning that reduces obligations. With a tax plan, both direct and indirect taxes are reduced when inflation occurs. Not only that because Tax planning means a proper planning of:
- Principal budget
- Deals besides Advertising prices
How Tax Planning Works?
Nowadays, one of the most common ways to efficiently minimize taxes for saving purposes is to use a retirement plan. Individuals can put money into some of the following accounts to help reduce or postpone their tax liability.
Tax Loss Harvesting
In terms of investment planning, tax loss harvesting is an additional method of tax management. After an investor sells a stock for a profit, capital gains must be paid. Tax loss harvesting is advantageous because it allows you to use losses in your portfolio to offset capital gains on stocks.
Income splitting is another way of phrasing the act of dividing taxes, and it implies the ability to take an income and distribute it among a number of tax payers.
Results of Tax Planning
- To claim the tax benefits, all you have to do is invest in eligible instruments.
- Providing accurate information to appropriate IT authorities.
- Being well-versed in applicable tax laws and court rulings on the subject.
- Tax planning should be done entirely within the bounds of the law.
- Planning should take into account business objectives as well as flexibility to accommodate future changes.
- Whether you are a long-time taxpayer or a novice taxpayer, you are probably paying more taxes than you should if you haven’t planned your taxes properly. Income tax clauses seem to be so complex that the average person is opposed to taxation.
It is the arrangement of a taxpayer’s business or financial relationship in such a way that the full tax benefit can be legitimately obtained, resulting in an amount of minimum tax.