Common mistakes to avoid while planning your taxes

Avoid these usual tax-saving blunders that might cost you in the future. Continue reading to learn more about them.

Tax planning is an important component of your entire financial planning process. It is something that should be done as soon as one begins working. That being said, it ought to be done even after retirement. 

This implies that tax planning is something you'll need to undertake for the rest of your life. It has been noted that people frequently look to tax planning just to save money. 

Although tax savings are an important aspect of tax planning, they must be viewed rationally. We have compiled a list of some of the most common mistakes to avoid while tax planning. 

Planning at the eleventh hour

People have a typical inclination to rush for things at the eleventh hour. This is why the months of January through March are termed tax-saving months. Even yet, this is the peak season for most insurance brokers, as they earn the majority of their commission during these three months.  

It goes without saying that in such a circumstance, they would sell you the things that will earn them the largest commission. As a result, it is preferable to begin preparing at the start of the fiscal year. This can help you save money on taxes as well as your last-minute dash. Not to mention that it will assist you in selecting the best tax-saving solution for your unique financial goals.  

Not linking tax-saving instruments to financial goals

It is common practice for people to invest in items just to reduce taxes. That's all! They don't even care about its appropriateness, and attaching it to their financial goals is out of the question. This frequently results in the wealth-building of product-selling brokers.

As a result, it is critical to align your tax-saving strategies with your financial objectives. If you have all of your financial goals in the short to medium term, investing in Unit-Linked Insurance Plans (ULIPs) and Equity-Linked Saving Schemes (ELSS) would not benefit you because they are market-linked.

Even if their lock-in period is not long enough, it requires a long-term investment view. In these situations, investing in tax-saving bank Fixed Deposits (FD) makes more sense. Otherwise, you can have a good mix of tax-free bank FDs and ELSS. 

Mix tax planning with insurance

This is among the most typical errors that so many individuals make. They just purchase ULIPs for tax savings and capital preservation. However, investors must recognise that, while ULIPs give tax benefits, the fact that they are offered by insurance companies does not make them risk-free. As a result, it is advised not to combine insurance and tax planning. Tax planning entails more than simply tax savings. It focuses on tax savings while also helping you achieve your financial goals.