Tax planning is a process that analyses a financial plan or situation from the point of view of tax and the main purpose of tax planning is to ensure tax efficiency. One needs to be thorough with the workings of financial elements under tax planning, to ensure that financial instruments work together in a tax efficient manner.
The main aim of an effective tax plan is to reduce the burden of tax liability by using the available resources in the most optimal manner and to maximize one’s ability to put funds into secured retirement plans.
Which factors are considered for tax planning?
The process of tax planning requires consideration of certain factors like income of the tax payer, size, time of purchase and other significant expenditures. The other crucial point to consider for tax planning is the choice of investment and any retirement plan of the investor.
What are the objectives of tax planning?
The basic objectives of an effective tax planning are as follows:
Reducing Tax Liability: You can save maximum sum of tax, if you manage your operation as per the law and within the framework of its statute.
Minimized litigation: There is always a constant battle between the tax-payers and tax collectors, a well thought tax plan conforms to the provisions laid down by tax laws and ensures a minimum chance of facing litigation.
Dynamic Investment: Tax planning enables you to channel your taxable income towards various investment policies. Tax planning will enable you to utilize your resources optimally, while at the same time it will allow you freedom from tax liability.
Growth of Economy: The growth of a country’s economy and its development is incidental to the growth of its people. The measures involved in Tax planning lead to the generation and free flow of wealth that promotes the growth and development of the economy.
Economic Stability: An effective tax plan leads to economic stability. Mobilization of resources for the development of national projects or availing productive investments results in achieving economic stability.
What are the basic types of tax planning?
There are 4 basic types of tax planning and they are:
1.Short-range tax planning: This type of tax planning is formed every year to be able to achieve targeted objectives for the financial year.
2.Long-range Tax Planning: This type of tax planning is formed keeping in mind the financial practices of a person, which are not going to be paid off soon.
3.Permissive Tax Planning: This type of tax planning is formed as per the provision that expresses tax laws.
4.Purposive Tax Planning: This type of tax planning refers to the method that is aimed at finding ways to maximize your liability and is very through with the laws laid down.
Why do you need an effective tax planning?
You need an effective Tax Planning for the following reasons:
Tax reduction through various investment tools.
Tax gain loss harvesting
One should follow an honest approach towards tax planning to avail the maximum benefit of tax related laws. For any assistance in building an effective and formidable tax plan, get in touch with us.