Tax Planning - What is Tax Planning, Importance and Benefits

What is Tax Planning?

Tax planning is an approach to lowering the tax liabilities for a taxpayer. It will provide the information about the taxes and the best ways to claim the maximum benefits, such as tax deductions, exemptions, etc. You should have a good knowledge of the tax laws because the process of tax planning should be done legally.

It includes reviewing the financial conditions of the taxpayer because it helps in optimizing and planning their finances. Tax planning helps in reducing the tax burden for that particular financial year.

Types of Tax Planning

There are different types of Tax planning based on different criteria. Here are a few of them:

• Long-term tax planning
• Short-term tax planning
• Purposive tax planning
• Permissive tax planning
• Structural tax planning
• Marginal tax planning

Benefits of Tax Planning

The benefits of tax planning are as follows:

1. Tax Savings: Tax planning in income tax helps in minimizing the tax liabilities and tries to maximize the tax deductions.
2. More money for investments: If you have the knowledge about tax obligations, then you will be able to redirect the money into the right direction of investment.
3. Making Strategies: While doing the tax planning, you can analyze the firm's data and make other strategies for more growth and development.
4. Gain confidence: By planning the taxes, the owners of the businesses and firms gain more knowledge about the compliance and how it operates. It also helps them in developing tax-saving measures for the company.
5. Investments: You should understand the core of the operations. You should get an idea of the potential profit from the areas never explored before, or untapped. You can find the new options for investments.
6. Budget Adjustments: It makes sure that a company gets the best benefit from the taxes, and you will not miss out on the incentive programs.