Planning Your Tax Liability

The recent reforms in the tax structure have changed the way economy works in the country, in more ways than one. There have been some sweeping changes that have reduced the tax burden on people. People need to reorganize and change the way they invested and this may improve the economy of the country by bringing in more money into the system. Similarly, effective planning will help to boost your financial health.

Tax Liability changes from time to time

Even without these tax reforms, with every change in your life and with age the tax liability changes. When you are young, you may depend upon your salary and the assets are nonexistent. Slowly the assets increase and your liability towards the loan repayment decreases with age. By retirement, you do not have any wages but may have a good base of investment and assets. At every stage of life and every time there is a change in the job profile, the tax liabilities change and you need to keep changing the investment accordingly.

Strategies and planning

One needs to understand that the tax structure works in a multi-pronged way. It gives tax advantages to encourage people to invest wisely. For example, if people save in 401K, which is geared towards retirement, saving then there is some tax advantage. Similarly, there is some benefit when one has a mortgage to repay towards the housing loan. The aim is to have a good home and a decent amount of retirement fund. The tax structure should be utilized to get the maximum advantage but do not go overboard and focus on taxes only. A balanced approach towards, tax planning and investment is needed.

Events you can plan for

There are some events that happen in everyone’s life. There is insurance for any loss of property or life. You must also ensure adequate health care and save money accordingly. But there may be some unanticipated event that may add to your tax liability like an inheritance or winning a lottery etc. At such times you will already be burdened with the pressure of the event and should consult an expert to work out the tax liability.

Tax planning is important as it changes the way we can utilize the money at our disposal. But at times people invest every dollar on the basis of some tax advantage. The point is that your investment should get you closer to your life goals and in the process get you tax advantages. You cannot keep focusing on taxes all the time and then plan your savings. If you do not understand the financials then it is better to go to experts and take their guidance. Be tax savvy and save money.

 

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