In a business world, the goal is to maximize revenues and cut down expenses so that you can maximize net income. Tax expenses are known to be one of the biggest expenses in business, depending on what country you’re in and what tax laws you follow. Moreover, this is the only thing that you can’t adjust—or can you?
While you must pay tax because it is stipulated in the law, there are several ways to cut it down so you don’t need to pay much. You may enlist outside help in minimizing your business taxes or you may study how to do it yourself. Let’s discuss some tips on how to do that.
Claim Your Expenses as Part of Your Business
Businesses would sometimes include their personal expenses as company expenses in order to lessen tax payment. For example, if you need a car, you can buy it with your own money but you can list it under company expenses so that your net will be lower in the books. Need a new laptop? You can do the same. However, you have to be a bit careful with this method as books are still audited so you can’t just claim any expenses.
Pay Yourself Your Salary or Dividends
In the pursuit of trying to earn money for the company, owners would often draw the salary from places other than its net income. This is not a smart move because the tax will shrink your net income before you can even give yourself a salary. Do remember that since you are the owner of the management, you are entitled to getting a salary, so give yourself one. You can also do the same with dividends. You can give yourself and your partners some dividends before taxing the final amount.
Why do charity? It’s good for your soul and your business. If you do your regular charity work, you can have a good public image and lessen your tax. In other words, you’ll be hitting several birds at the same time. Charity is never taxed so use that to your advantage.
Use Deferring and Accelerating Techniques
To sum it all up, you either defer your income and accelerate your expense or you accelerate your income and defer your expense. You do the former if you are in the same tax bracket as the accounting year and do the latter if you are in a higher tax bracket compared to last year. This will help you to either push your taxes to the next accounting year so you don’t have to pay right away or to delay the payment of your taxes. Either way, you’ll definitely pay less.
Give Higher Contributions/Benefits
When you shell out money for salary, you can’t expect to have a maximized income tax. Instead of raising the salary, you can add more to contributions and benefits like loan benefits or health benefits. These are not taxed and can save you and your employees a bundle.