The biggest goal of planning your taxes beforehand is to pay less income tax. But what we fail to foresee is that by planning our taxes smartly, we not only save a ton of money but we also get a chance to boost our overall financial portfolio. When it comes to strategizing your tax planning, one size does NOT fit all. Tax planning involves analyzing your current financial situation from the point of view of your taxes. This helps you in optimizing your finances and make the most of the various tax exemptions and deductions available.
While we stand at the close of another financial year; it’s time to we take a moment to look at the most vital things to keep in mind when preparing for a successful tax plan:-
DON’T lose sight of your goals
Your strategy must keep in mind your individual circumstances. For instance, if you are young, bank FD’s are NOT ideal for you – if you’re older, there are still more ways to explore namely ELSS. Equity Linked Savings Scheme or ELSS is a type of mutual fund that invests in equities or equity-oriented products. ELSS should be part of your tax planning – may be less for older people and more for younger people as your returns are subject to market risks.
In case you’re risk-averse and wish to stay with a debt based product, PPF is the best option for you.
DON’T mistake your insurance for investment
Insurance is a great tool for protection but it should not be assumed as an investment tool. Overheads like administrative fees for a whole life insurance policy are high compared to other investment options, and oftentimes, you don’t have any control over how you&re investing. Thus, don’t fall for “insurance+investment” combo products just to save on your taxes.
Don’t renew your previous investment-linked insurance policies; just because you invested in it a few years ago. If you made a mistake before, it doesn’t mean you got to stick to it.
DON’T rely on short-term performances
Investing in ELSS is one of the most preferred options when it comes to tax planning. However, when investing for saving taxes, don’t judge a product by its performance in the last 5 years. Consult a financial advisor, add a goal to the investment you’re about to make to save on taxes and choose a product that will eventually give you returns.
DON’T begin late
This mantra holds true for all tax-saving investments. Tax planning is not a once a year ritual since it affects your overall financial portfolio. Hence instead of rushing to save on your taxes in the JFM month, plan for them at the start of the year while you sit down to review your overall financial portfolio. Remember, tax planning is a part of your overall financial planning.
Tax Planning can be equal to Retirement Planning
Retirement planning would surely be last on your list every time you plan for your finances! But this tax planning exercise can help you kick start your retirement planning. Wanna know how? It’s simple to start a SIP in an ELSS. As a yearly ritual, you will continue investing for tax planning to save on your taxes which in turn would add up to your retirement corpus too. Your retirement planning could not be simpler than this!
Our goal is to plan your lives by planning your finances better. Taking a holistic approach when saving taxes makes for a robust way to deal with your finances. Goals are easier to achieve when you set your priorities right. And we’re here to help you create financial plans that keep your dreams in mind. Start planning now!