How to save taxes and why?

Are you a tax payer? If yes, do you know that government has provided both businesses owners and salaries individuals many ways by which they can save their taxes?

Planning your taxes and adjusting your earnings by availing exemptions will help you finance your budget each year. Here is a tip, do you guys know 20 to 40% of your taxes are exempted by investing in a certain way. Moreover, most of you give plenty of amounts in zakat or charity. Those zakat or charity if used in certain way can play a major role in tax savings.

So, what are your thoughts about: organizing your way and planning your taxes ahead of time?  To be able to reduce tax liability while staying complied with government rules and regulations?

Let us review some of the tax saving strategies…

1. Become a filer. In Pakistan, the individuals and business owners are taxed at a very high rate by the government if they are not an income tax filer. You are giving taxes, whether you are taking out amount from your ATM or doing online shopping or purchasing cars etc. If you are not careful about this, you are paying government a good part of your income without any good reason. So the most fundamental advice that we can give you to save taxes is to get yourself registered with tax authorities and become a filer.  
2. Avoid income that is subjected to tax. The statement means that there are incomes which are not subject to tax e.g. agricultural income, any amount receivable from any gratuity fund approved by the Commissioner, additional income that doesn’t involve taxes. This income is commonly seen and practice by many of us as payment towards employee’s benefits etc.
3. Avail tax credit opportunities. For example, a self-employed individual earning up to 150,000/- to 200,000/- has to give 70,000/- plus 15% of amount exceeding 150,000/- a month as income tax for the year.  Such tax liabilities can be reduced by availing various tax credits offered to us on investing our money in a certain way.  Some banks in Pakistan encourage clients to purchase mutual funds and pension schemes that entitled you to avail tax credits and increase the return on your savings.
4. Tax deduction is the simplest method to reduce the amount of taxes claimed. The easiest way to understand the process of deduction is to note the percentage of income tax that is positive while calculating and expenses percentage is negative. The main concept is the more are your deductions, the more you can save taxes. However, the income under tax is not calculated the same way as that in accounting. Therefore, how much expense and other amounts you can claim as deductions may be very different from accounting expenses.
5. Businesses charitable donations. If you are a company and want a share of rebate or refunds for tax liability try investing on donations for university or hospitals run under Pakistan by federal government. The share of this donation may lead to a 20% deduction against taxable income.

Final thought….

We believe you owe it to yourself that you learn these fundamentals of tax planning. The faster you tend to understand these tax saving strategies and the advantages it can bring to you, the better your financial situation will start to become. That will be the stage when you will not be counted among the people who are paying much more taxes to the government than you are really required to.