When Should You Start Tax Planning? Find Out

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Tax planning is important for every prudent employee or business owner. Now, what is tax planning? It is an art as well as a skill that helps you manage your affairs in such a way that you are able to postpone or avoid taxes for minimizing your financial burden. When you plan your taxes in a skillful way, you get more money at your disposal to save and invest. Believe it or not, proper tax planning can make the tax season more of a reason to celebrate than to be worried and grieved about. Now, the question that arises here is how can one defer or avoid taxes? Well, if you know how to take advantage of tax law provisions, this is no daunting task!

Under tax planning, strategies are devised and executed to achieve some goals- financial or otherwise. When you do your tax planning in an effective manner, it helps you accomplish or address the goals below -

  1. Reduce the taxable income amount.

  2. Lower the rate at which you will be levied taxes.

  3. Help you be decisive about when exactly the taxes get paid.

  4. Ensure you get all credits available to you.

  5. Getting in charge of the alternate minimum tax.

So, proper tax saving investment planning can help you reap innumerable benefits. But sadly, a lot of people tend to get serious about tax planning only during the tax season. The prime reason why this happens is that they consider tax planning a one-off responsibility, as their primary goal is to receive as many income tax benefits as possible.

But prudent employees start early and then build on it. They don’t wait for the financial year to end to switch their tax planning mode on.

You should always consider tax planning as an integral part of your financial plan. A lot of people desire to save taxes but don’t do much to make this happen. If you want to make great tax savings, say ‘yes’ to investments. Investments made especially to save taxes will bring you closer to your financial goals.

One thing that you need to understand here is that you are able to reap maximum benefits only when you start your tax planning early on. When you start your tax planning early, you expose yourself to the following benefits -

- You will be saved from locking your money in financial instruments that are not suitable to the kind of financial goals you have.

- Often when you avoid paying taxes regularly, you get financially burdened at the end of a year. You can avoid this by planning your taxes early on, making the burden spread over all the 12 months of a year.

- No matter how impossible your distant your financial goals seem to you, with proper tax planning done early, you will be able to achieve them, that too within a short period of time.

If you want to optimize your tax planning, these are the steps that you need to follow -

  • Asses your tax liability -
    Determining tax liability is important. Calculate it on the basis of the tax slab under which your income amount falls, and then also calculate the amount you want deducted from the dues.

  • What are the fresh investments you intend to make?
    Find out if the amount you have invested already is sufficient to claim the calculated amount of deduction. If not, then will you need more fresh investments? Get the answer to this question before you take the next step.

  • Which financial instrument(s) you intend to make your investments in?
    There are so many instruments in the market that you might feel a little confused regarding which one to opt for. So, take into consideration all of your requirements and financial goals while choosing a product to make investments in. There are dedicated tax saving mutual funds available these days, in which you can invest for maximum benefits.

Below, you find some of the most important considerations to factor in while choosing tax saving investments -

  • Your personal Tax slab

  • Goals

  • Taxability of Income

  • Risk appetite

  • Lock in period

  • Inflation

Final Words -

Tax planning should start with the start of each financial year. Remember! Planning your taxes in a hurry can have serious long-term repercussions. So, start early and reap all the benefits tax provisions have on offer for you.