Income Tax is something that can’t be avoided and it comes as a liability to anyone who is earning money. For the salaried class, the income tax is deducted from the salary at the source but for the businessman, the tax needs to be paid on basis of the profits. It is not really a liability because the fact is that the government is using tax money to provide services to all of us.
10 Ways To Save Money On Your Small Business Taxes
These services range from the health services to building infrastructure. So, we would reframe what we said and we would say that you must pay your income tax but the lower the better. Not that we are getting into some kind of manipulations but we are talking about exploiting the deductions offered by the government to reduce the tax burden. Let us now look at the details of how you can really go ahead and save tax if you are a businessman.
1.Travel, Food, and Communication Expense – We are sure that you would have to visit places because of the business needs. In addition to this, you would also be ordering food at the restaurants during the business meets. All these expenses can be shown as a business expense which basically reduces your profits and in turn, reduces the tax that you need to pay.
2.Interest Expense for Business – If you have a business loan then do not forget to deduct the interest that you pay. The complete interest amount is deductible and this also reduces the profit before tax. In turn, the tax amount is reduced which basically works to your advantage.
3. Investments – If you have surplus cash available at your disposal then you can also make long term investments which will not only save you from income tax but they will also help you in earning an additional income for your business.
4. Structure your Pay – Even as a business owner, you are employed towards that entity and you must be withdrawing a salary for yourself. In such a case, you can structure your pay easily and include some of the allowances like HRA, Medical Allowance, EPF and other such things which surely would help you in reducing the tax amount greatly.
5.Donations – As a business, it becomes your ethical responsibility to help the people in need. This can be done by considering donations for the NGOs and other government agencies. You can also save tax by donating as the donation amounts are 100% tax deductible.
6.Hindu Undivided Family Clause – If in case you have multiple sources of income, you can open a Hindu Undivided Family account for the second source of income. This is one such way that people use to save taxes and it is certainly something that a lot of people prefer doing. The process is relatively hassle-free.
7.Interest Expense for Home Loan and Education Loan – If you have a home loan or an education loan then remember that the interest expense is tax deductible. You can remove the interest amount from the profits before you calculate the tax. This also reduces the magnitude of tax significantly. You can also consider the deductions for the loan that you have taken for your children.
8.Depreciation – Depreciation is also deducted before the tax amount is calculated so ensure that you are considering this point as well. If you plan to buy a car then register it with your business and you will be able to charge the depreciation to your business which will further reduce the tax burden.
9. Hire Contractors – Another thing that you can do is that you can hire the contractors instead of the full-time employee as this saves you from paying for the other benefits to the employee. We would suggest you to consider speaking to an expert before hiring contractors. In addition to this, you can also portray your wife and children (over 18) as your employee and you can disburse a salary to them.
10. Consider the Loses – If you faced losses in the last three years then remember that those losses can be amortized and it can also help you in reducing the tax amount.
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These are some of the smart and legal ways to save tax for the businessman. There is nothing illegal about implementing these ways and in addition to this, you can also go ahead and use these smart tax saving tips after consulting your accountant. He will be able to help you in a better way while you are implementing these tips. It should be noted that we are talking about the tax saving tips in general and the rules in your state or country may vary and in such a case, consult your tax specialist before implementing any of these tips.