Tax Saving Tips: Keep More of Your Hard Earned Money in Your Pocket

During Tax Season, everyone's biggest concern is how to keep from paying in more taxes. Often it's too late during those lag months to do anything different, but there are a few things you can do now to plan for next year.

1. Put a Tax Savings Plan in Place, and Use It.

Discuss your tax issues with your Tax Preparer and put a plan in effect now for this year's income to save money on next year's taxes. By creating a Tax Plan & Budget now, you will have an active lead on what you should be doing during each quarter, not only to make your business more profitable, but also to save those extra dollars you pay to IRS and the Government.

2. Use investment, tax deferment, and alternate income sources to cut taxable income.

Invest in your future, for a time when you won't be making as much money, so you'll have a lower tax bracket. Put money in savings for your children's education and defer your tax costs until you have fewer children at home to support. IF your children literally do work in your business, put them on the payroll, let them pay their own expenses for summer camp and education, and reduce your tax burden. They paychecks are deductible, summer camp and education is not.

3. Adjust billing, collection, and payables for maximum tax advantage.

Yes you can defer billing a client until after the New Year, to avoid taxing that income in the current year. It may or may not be advisable, depending on the client. Prepaying for long term services can increase your deductions. Providing you really do use the services, this is an excellent method of reducing taxes.

4. Document your expenses, keep good records, and write a daily activity diary.

Document everything, no matter how trivial; keep good records of your activities and expenses related to business. When your receipts are confirmed by a diary entry, IRS can't argue with your deductions.

5. Be a Good Steward of your Money.

When your bills are due, pay them. IRS understands the value of punctuality. They charge penalties for being late. Penalties increase your Tax Debt. So, it's always best to pay your Tax bills when they are due or before.

Donations, time, money, and objects are deductible on some level, keep good records to determine your legal donation limits and prevent overpayment of taxes.

6. Work from Home

Home based businesses get the cream of Tax Deductions. These deductions are legitimate if you have proof. Your daily diary will provide active proof of your business operations, duties, and deductible expenses. If in doubt write it down. Ask your tax preparer to be certain.

7. Incorporate Your Business

Corporations pay less for the same Taxable income. In general, this statement is true. However, before going to the expense of incorporating your business, ask your Tax Preparer to advise you. It may not save enough money to pay for the legalities of incorporating.

There are many ways to save money on your Tax Saving Plans. These are just a few of the more popular methods. If you'd like more information, contact your Tax Preparer.

Source: http://blogs.rediff.com/taxsavingplans/2016/07/16/ritikashah11998-20/

Tax Saving Plan for Employed People

Employed people have less scope for tax savings as compared to self-employed people.

If you are currently employed, the income and benefits from and related to your employment are taxed and you cannot claim any deductions against employment income except that are specifically allowed by the system.

Here are some taxes planning techniques which can lead to save taxes:

• Arrange to get nontaxable benefits: There are some employment benefits which are not taxable like contributions to a registered pension plan, contributions to a group sickness or accident insurance plan, contributions to a private health services plan, all or portion of the cost of free or subsidized school services for your children.

• Ask to have your source withholdings reduced wherever possible: In any situation where you expect to receive a refund after filing your return, you should review the form which you file with your employer and seek to have source with holdings reduced. If you get a refund, that means the has been holding your money and not paying you interest on it for many months. It is better you can send a cheque to at filing time so that you can use that funds in the meantime.

• Pay interest owing on loan from employer by January 30 of the following year:

If you receive a low interest -free loan from your employer, you are considered to have received a benefit from employment. The benefit is set at the CRA's current prescribed rate of interest minus any interest you actually pay during the year or within 30 days after the end of the year. This will provide you with a cash flow advantage.

• Consider employee's profit sharing plans for cash flow purposes: there is no source withholding on the amounts paid by the plan to you. Careful timing of the employers' contributions and the Tax Saving Plans disbursements can give you better cash flow than would a straight bonus payment.

• Transfer retiring allowances to an RRSP: If you transfer the entire retiring allowance into an RRSP, the legal fees will never become deductible. When you take payments out of the RRSP, they are no longer considered a retiring allowance.

• Claim the employment tax credit to help cover your work related expenses: Employees can claim a 15% tax credit to help cover their work related expenses.

• Employed trades people can claim the deduction for the cost of new tools: If you are an employed trade person and you must use your own tools on the job, you can deduct the portion of the cost of new tools.

• You can claim rebate for GST/HST paid on expenses deductible from your employment income.

Source: http://blogs.rediff.com/taxsavingplans/2016/07/14/ritikashah11998-19/

Many in India Still Think That Insurance is an Avoidable Expenditure

The insurance sector has only 2% penetration in Indian market largely to the fact that Indians see it as an avoidable expenditure. Many in India don’t see the urgency to get insurance policies. A majority of Indians still reside in rural areas or lesser developed towns where awareness is restricted. Large percentage of illiteracy still prevails in major parts of India. In order to penetrate deeper in the Indian market the insurers need to spread awareness among the ‘centers of influence’ i.e. the ‘village sarpanch’ in case of villages. Centers of influence can be different for different people. People mostly get influenced by people on whom they have trust. For some they can be their family and friends as well. Many people in India still don’t bother to buy essential insurance policies like health insurance. Reasons can be many but one of the most common reasons is that people don’t find the urgency to buy an Life insurance policy. India is still a developing country and there is large inequality of income spread. A large number of people somehow manage to pay bills and any money left after paying bills is mostly spent on leisure or savings in banks (mostly). Having an insurance policy like term insurance or health insurance is still thought of as a luxury. It is seen in case of motor insurance that people in order to avoid challahs or fine get only third party insurance as it is mandatory. They don’t take comprehensive motor insurance policies that cover their own vehicle as well. The whole ideology is to save or avoid paying premium even if they are exposed to a higher financial risk. Many people mostly in second and third tier cities where traffic checking is less strict than a city like Delhi don’t even bother to get third party or liability insurance done for their vehicles. The defaulters are obliged to be penalized heavily. Still, in order to avoid paying premium they don’t get it done. And there are many others who still don’t trust that their claim would be paid by the insurance company when the need arises. Maybe they have seen or witnessed cases where claims have been rejected by companies. There can be faulty or fraudulent claims by the policyholder.

Although the scenario has been changing post liberalization with the advent of many private players in the Indian Insurance market space there are still paths left to be unblocked. Some of the world’s largest and most reputed insurance companies partnered with Indian corporate houses have ventured in India. They have brought international expertise and know how in the country. With aggressive advertising and transparent disclosures the insurance industry is expanding. It is still in a very nascent stage. There have been major alterations and modifications in handling the various intermediaries in the insurance sector to make insurance selling fairer and more convenient. The easier accessibility of the internet and rage to buy everything online among the masses has seen the birth and exponential rise of online insurance policies being offered by various insurers.

A lot of awareness and trust is still to be spread among the Indian masses to encourage them to be adequately insured. Insurance is an extremely importance risk management tool. Not being insured or being underinsured is a major risk. Being adequately insured gives a person a sense of self sufficiency and confidence to face adversities. This message has to be scribbled in the Indian psyche. Insurance is not a mere tax saving scheme rather it is the most trusted confidant that would come to aide in the most desperate times. With more education and fair trade practices one can hope to see a fair insurance market penetration in the country in times to come.

Source: http://tax-saving-plans.tumblr.com/post/144543645260/many-in-india-still-think-that-insurance-is-an

Quick tips to save tax through insurance

Come March and all of us will be busy in calculating our tax liabilities. In fact, most organisations start asking for proofs of investment under tax exempted instruments by January itself.

Thus, this is the time when one can review his or her tax liabilities and take necessary actions. As you may already be aware that this year the income tax exemption limit towards life insurance has increased from Rs 1 lakh to Rs 1.50 lakh. It is a significant jump of flat 50 per cent. This exemption can be claimed under section 80C of the Income Tax Act.

But, are you going to take advantage of this move? Of course, you should. Unfortunately, there are millions of people who had been investing in insurance as per the previous limit of Rs 1 lakh. But it is still not late and you can take a corrective action.

What about pension funds?

If you are thinking of investing in a long-term pension fund, then you can claim tax benefit under section 80CCD of the Income Tax Act. The deduction under this section can be availed up to Rs 1 lakh.

Although, the pension which you receive after the policy tenure is applicable to income tax. The percentage of tax depends upon the amount of your gross taxable income.

Section 80 CCE of the Act specifies that the total limit of deduction under the abovementioned sections – 80C and 80CCD comes to Rs 1.50 lakh.

Deduction under health insurance

After life insurance, you can further claim income tax deduction with respect to premium paid towards health insurance. There is a provision of deduction up to Rs 15,000 towards health insurance.

This is further added up by Rs 20,000 towards health insurance premium paid for parents above 60 years of age. If parents are below 60 years, then the tax deduction would be Rs 15,000. Tax payers, who fall in the category of senior citizens, can also claim the deduction of Rs 20,000.

Are you worried about low returns?

A large number of people appreciate life insurance plans because of their dual benefit of risk coverage and tax exemption. But there is always a concern on the low rate of returns offered by these plans. It is observed that most plans offer annual returns in the range of 5-8 per cent.

This rate of return is even lower than average rate of inflation. Thus, investing in insurance is not preferred by people who wish high return on investment. They may invest some amount to cover risk and get some exemption but they always aspire to invest in other instruments such as equities and real estate. Is there a solution?

Well, we cannot say anything about real estate, but yes, you can always invest in equities and insurance altogether. Unit Linked Insurance Plan (ULIP) are the potential solution.

These plans are also recognised for Tax Saving Plans exemption under section 80C and there is an added benefit of investing in equity markets. You can always the allocation of your premium in traditional debt instruments and equities to balance risks. For instance, you can specify that 40 per cent of your premium should be invested in equities and the rest in government securities. This helps is enhancing the average rate of returns on you investment.

For instance, you invest Rs 1 lakh in ULIPs, specifying that Rs 60,000 should be invested in government securities and the rest in equity markets. Now, in a year if your plan generate 9 per cent on government securities and 15 per cent from equity markets, your total return will be as: Rs 5,400 from securities and Rs 6,000 from equities. This will bring you a return of Rs 11,400 in total – 11.4 per cent returns per annum.

In the long run, you are able to enjoy the power of compounding. ULIPs have a lock-in period of 3-5 years, and you are somehow bound to think long term. If you tend to withdraw the premium before this period, the deductions are as high as 30 per cent.

From these perspectives, all the insurance plans have such conditions in place. That means, if you withdraw premium amount before a certain period, which is generally 3-5 years, then the penalties fall in the range of 30 per cent. Thus, it is better to invest in insurance from a long term perspectives, and it really works, providing you a sizeable corpus.

YOUR FAMILY CAN HELP YOU SAVE TAXES – HERE’S HOW

This is time of the year when we are scurrying to put together our investment proofs and tax savings documents. You family can help you save taxes too, let’s find out how.

Health insurance – The pressures of modern living have put our health at greater risk. While most employees have a medical insurance cover from their employer, it usually only covers hospitalization. Buying a medical insurance cover for your spouse, children and parents to cover common ailments has tax benefits too. For you and your spouse & children a deduction of Rs 25,000 and for parents an additional Rs 30,000 can be claimed under section 80D. You can also avail tax benefits under section 80D if you purchase a term insurance plan with a critical illness benefit. Do remember to pay the annual premium at this time, so you can claim the entire amount as deduction in your tax return.  

Medical check-ups – Included in the amount for deduction under section 80D is health check-ups for your family.  If you do not want to go for medical insurance, getting a preventive health check-up done for your family will help you save taxes. Several hospitals and clinics offer preventive health check-up packages. A maximum of Rs 5,000 can be claimed for you, your spouse’s and your children’s health check-up. Rs 5,000 can also be claimed for health check-up of your parents. These amounts however are within the overall limit of section 80D. You can get both medical insurance as well as preventive health checkup but the total deduction cannot exceed the amounts specified above.

Life insurance premium – Buying a life cover for you & your family can save you taxes. The premium paid is allowed as a deduction under section 80C. The policy must be in the taxpayer’s or spouse’s or any child’s name (the child may be dependent/independent, male/female, minor/major, or married/unmarried). A maximum of Rs 1,50,000 can be claimed under section 80C. If you intend you purchase a life insurance policy do check the premium commitments, terms and the cover in detail. You’ll have to pay the premium over a number of years and do not make the decision in haste to save taxes.

Rent on accommodation – If you are living with your parents, you can pay them rent and save tax on HRA. Enter in to a rent agreement with your parents and pay them the monthly rent. Your parents will include this rental income in their tax return. If the house is jointly owned they can split the income in the ratio of their ownership. If they are in a lower tax bracket or do not have taxable income, as a family you’ll end up saving tax. For parents who are more than 60 years old the exemption limit is Rs 3,00,000 and for parents older than 80 years, the exemption limit is Rs 5,00,000. So if they this rental income keeps them under the exemption limit, you’ll have greater tax benefits The rental income earned by them can be further invested in Tax Saving Plans free instruments such as ELSS or senior citizen’s savings scheme or fixed deposits.

Tuition Fees – Any sum paid as tuition fees (excluding payment towards development fees/donation/similar nature payment) to any university/college/educational institution in India for full time education of any two of your children, is deductible under section 80C. This is an expense that you have already incurred and you can claim it in your return and save tax. A maximum of Rs 1,50,000 can be claimed under section 80C.

Your family can help you save tax on your hard earned money.

Save a Month’s Salary in Taxes

It is the last quarter of the financial year, and hence the ideal time for tax planning if you haven’t done it already.

At this juncture, it is important to keep in mind that your annual package is directly proportionate to your tax liability, meaning, as your income increases, your tax liability increases as well.

The annual tax liability of an individual is almost equal to one month’s salary. However, even after the basic deductions, such as EPF and HRA, at the employer’s end, you end up sharing a substantial percentage of your salary with the taxman.

For instance, an individual with a take-home salary of Rs.50,000 a month accrues an annual tax liability of Rs.46500 which is almost equal to the take-home amount.

Depending on your tax slab, you can save up to Rs.45,000 in income tax by claiming deductions under Section 80C and up to Rs.4,500  by the means of claiming deductions under Section 80D.

Investing in the following instruments can help you claim deductions with accordance to Section 80C and Section 80D of the income-tax act and eventually, legally save tax:

Term Plans

Term plans require a higher level of commitment and offer modest returns; this is why term plans are not considered as good means of saving on taxes.

A term insurance plan requires you to pay premiums for a definite period of time and provides risk coverage.

If the insured person expires during the policy term, the beneficiary is entitled to the insured sum, but, if the person survives the policy cover period, then survival benefits are not given to the beneficiary. Hence, this product does not interest buyers.

However, from a tax-saving perspective, all insurance plans are equal before the law. Therefore, irrespective of the kind of life insurance plan, you get equal tax benefits.

As life insurance falls under EEE (i.e. Exemp-Exempt-Exemp) category, both, the premium paid as well the sum assured is exempt from income tax.

For instance, if a non-smoker starts at an age of 25, then paying nearly Rs.15,000 per annum can get him a sum assured of nearly Rs.3 crores.

The amount of Rs. 15000 that you pay towards premiums will be treated as a deduction from your taxable income, while the sum assured will be a totally tax-free income.

Health Insurance

You can claim for tax deductions against the money spent for medical expenses for self or a dependent family member.

An individual can claim maximum deduction of Rs. 30,000 u/s 80D. This deduction includes Rs.15,000 for himself and family and the rest Rs.15,000 for parents.

However, if the parents are senior citizens the deduction allowable for them is Rs. 20000. This benefit is available over and above the deductions of Rs. 1.5 lacs under Section 80C.

For example, if an individual with a package of Rs.10 to 15 lacs per annum invests about Rs.7,000 per annum towards a health insurance plan, then he can get a sum assured of Rs.10 lacs. This premium of Rs.7,000 can be treated as a deduction from the taxable income.

There are 4 kinds of health insurance plans that you can choose from. This includes medical insurance plan, hospitalization plan, super top-up plan and critical illness plan.

Child Plans

It is not necessary to start planning for your child after you have one. You can start saving and investing as soon as you get married.

As we are already aware, the cost of education is growing much faster than inflation. Fee for higher education is not what it used to be about 15 to 20 years ago.

Pursuing a master’s degree from a leading management school now a days costs you around 14 to 15 lacs or may be higher.

Hence, to avoid financial crises in future, it is imperative for parents to start saving for our children’s secure future as early as possible.

Along with securing your child’s career and future, these plans save you a substantial amount of tax as well. They not only allow you to claim deductions in the year of investment but also ensure a tax-free return to your child in future.

For example, if an individual buys a child plan as soon as his child is born, and pays approximately Rs.72,000 per annum for 20 years, then his child would get a sum assured of Rs.30,00,000 lacs post maturity.

However, both the premium and the sum assured will be tax-free only if the annual premium is less than 10 % of the total sum assured.

I the annual premiums exceed 10 % of the sum assured, then the premium only up to that limit will be exempt and the entire sum assure will be taxable under the head ‘income from other sources’.

Retirement Plans

It is wise to start planning for your retirement as soon as you start earning; because later you start the more you pay towards premiums, which can make it difficult for you to set aside a sufficient corpus for the golden years of your life.

The income tax act states that any amount paid to keep a retirement policy in force is eligible to be claimed as a deduction under section 80C.

Therefore, the entire amount paid by you, inclusive of service tax and any other charges if collected by the insurer, can be deducted from your taxable income.

Amount that can comfortably fulfill of your current requirements will not be sufficient meet your requirements when you turn 65; reason being, the rising cost of living and the shooting inflation rate.

Hence, it is imperative for you to save for your calm future.

NOTE: Pension plans offered by insurance companies give you similar Tax Saving Plans benefits as retirement schemes by mutual fund companies.

You can claim a deduction of up to Rs.1 lac from the amount of premium paid towards a pension plan under Section 80CCC of the Income Tax Act. While, one-third of the maturity amount withdrawn will also be tax free.

Save Tax & defeat the Tax Monster even at the 11th hour!!

Every year, the month of March springs a wakeup call on many of us. Suddenly, we are rushing at breakneck speed, going through financial papers, researching investment instruments, frantically calling the accountant—the deadline to file income tax returns is once again too close for comfort.

There are many reasons why we put off filing our tax returns each year—work, family pressure, and even sheer laziness. We are all wired to procrastinate; blame it on human nature. The point is this: Should we at all be procrastinating about something as crucial as our tax planning ?

Last-minute tax savings: Why it is a problem

Higher financial burden – Last-minute tax savers often have to scrimp during the last few months of the financial year because a bulk of their income is now directed into tax-saving instruments. The problem is compounded by the fact that the largest chunk of income tax is deducted during the final quarter of the financial year—i.e. from January to March.

Greater opportunity for error – Rushing is never a good idea, especially when your financial well-being is at stake. In the hurry to make good on the potential to save tax , you could make poor financial decisions and invest in unsuitable products. For example, a 25-year-old confirmed bachelor with no dependents has little need for life insurance, but he might buy a policy at the last minute in an attempt to save tax.

Dangers of mis-selling – When attempting tax savings at the 11th hour, many people consult agents and blindly take their advice. You should never take an agent’s sales pitch at face value because (a) there is the obvious danger of mis-selling by an unscrupulous agent and (b) even an honest agent may not be sufficiently aware of your financial condition. It is necessary to do your own research, which is not possible at the last minute.

Processing takes time – Note that buying a tax saving investment is not like buying groceries; there are procedures and it takes time. Furthermore, there may be unexpected delays for various reasons. Postpone your  tax planning until too late and you run the danger of missing your tax filing deadline.

Tax planning: Why you should start early

Make good investments – You should ideally give yourself time to research tax-saving products so that you are certain of getting a good deal. Starting early also ensures that you benefit from the potentially higher rate of returns than your savings bank account would offer you.

Spread out the burden – If you start planning early, you can spread out the cost of making smart investments. Smart planning ensures that you do not have to adopt austerity measures as January comes around in a bid to do save as much tax as possible.

Look at the bigger picture – The longer you procrastinate, the greater the possibility that you will be looking at tax savings through blinkers: Your main goal will then be to save taxes in that particular year rather than on which tax-saving investment instruments benefit you over the long term. This really is the most important factor in favour of starting early, as it enables you to plan for your financial future in a better and more holistic way.

Source : http://lifeinsurance.bajajallianz.com/tax-insights/save-tax-defeat-the-tax-monster-even-at-the-11th-hour/