Tax planning is the analysis of finance that aims to reduce one’s tax liabilities and enables one to optimally utilize tax exemptions and tax rebates as much as possible. Tax planning incorporates making proper financial and business decisions that minimize tax incidence. This strategic planning helps you legitimately avail the maximum tax benefits by following all the tax laws. Moreover, tax planning helps you plan your finances right at the beginning of the fiscal year instead of updating them at the last moment.
During tax planning, tax deductions and tax credits play important roles. Knowing both these terms can reduce your tax bill in very different ways. These concepts can help you create some of the effective tax strategies that would eventually reduce your tax bill.
Tax Deductions: These are the expenses that define how much of your income is subject to taxes. Subtracting these specific expenses that you have incurred can reduce your payable tax by a considerable amount.
Tax Credits: The tax credit is a tax incentive that allows you to make a dollar-for-dollar reduction in your tax bill.
