10 Tips for Tax saving for Business Owners
Tax savings for business owners can offer significant relief, but getting the most money back is not always easy. This blog explains how to do tax savings for business owners and reveals your best bets for how you can save as much cash as possible.
The first step in saving taxes is learning what deductions are available to you. After that, it’s simply a matter of setting up a good cash plan. So, if you want to do tax savings for your business, then read on!
Simple tips for tax savings
Before you make the financial mistake of giving your business away or selling it to a competitor, you must protect yourself with some tax planning. Here are 10 simple ways that business owners can save money with taxes:
- Don’t claim anything as a deduction without proof. Match personal spending with business expenses before claiming them.
- Claim all payments for services in the year when they are earned rather than later years.
- Don’t forget to include things like depreciation and interest income in your final tax return. Make sure that businesses have been set up correctly to allow them to get tax credits for these items at the end of the year and any others that may apply to their specific circumstances.
- Don’t forget to claim the S300 and EMI deductions.
- Don’t forget to claim all your Employee Provident Fund (EPF) contributions from your business.
- Actively manage your business tax position with a trusted tax advisor.
- Don’t spend money on tax planning before you’ve earned it in your business.
- Take advantage of the Inland Revenue Department’s (IRD’s) generous appeals process when disputed amounts arise from audit decisions.
- Use a tax preparation software program to file your taxes.
- Stop sending money to the IRS through a fee background check service. The best way to stop sending money is to set up an automatic withdrawal from your bank account into a savings account so that you never have to lift a finger in response when the government sends you an e-mail asking for money again.
Ways of saving tax as an entrepreneur
Employ your relatives and family members.
Employing family members might be a considerable tax-saving measure. They may accept remuneration similar to those received by other employees. The business can only pay the hired family members Rs. 2,50,000 per year if they do not have any other sources of revenue. They won’t be required to pay taxes as a result of this. Since the salaries provided to the employees are an expense to the business, they can be subtracted from its taxable income, reducing its overall tax obligation.
Pay municipal fees with a check
Municipal taxes paid throughout the year are deductible from revenue from real estate acquisitions. People often pay their municipal taxes in cash without keeping a record of their receipts. However, settling municipal taxes allows you a deduction, which you can still claim even if you misplace the receipt because it will appear on your bank statement.
Transportation and lodging
Entrepreneurs often travel for professional motives. If business owners have locations scattered throughout multiple cities, they tend to do this more widely. Prearrange your travel and lodging on the company’s dime rather than out of your pocket beginning with your next trip if you want to avoid taxes. This can be written off from the company’s taxable revenue as a company expense.
Valuation of stocks
Normally, the stock is valued at cost; however, a stock with a limited shelf life should be valued using the idea of cost or net present value (NRV), whichever is lower. The stock’s actual realizable worth is provided by Net Realizable Value, which keeps it from being overvalued and, eventually, lowers taxes. To avoid the unwelcome attention of income tax officials, the practice of such valuation should be maintained over time.
Request housing loan interest advantages.
Some people choose not to use bank financing to construct homes, but the truth is that doing so can have several advantages. From a tax perspective, you can deduct interest from your home’s value and deduct principal under section 80C, together with other deductions up to a total of Rs 1,50,000. For tax reasons, the gross value is assumed to be NIL, and taking a deduction results in a loss under the heading “Income from House Property” that can be offset against other heads’ revenues to reduce total taxable income.
Health Insurance
Insurance premiums up to Rs 25,000 can be written off as a tax deduction under Section 80D of the Income Tax Act, 1961. This involves you and your family. If your employer issues health insurance when you are a full-time employee and also own a business, the insurance won’t apply to you.
Subtract income that is taxed under other headings.
When determining overall profits, indirect incomes like interest incomes are added. The majority of individuals are unaware that such incomes may even be exempt in some portions and subject to taxation under other heads. If book profits are not deducted, one may not only pay greater taxes but also miss out on any tax breaks.
Approach to Mutual Fund SIP
The agents that sell you mutual funds will never notify you of the right tax treatment of your SIPs and will continuously claim that if units are sold after a year, capital gains are free. The claim is only partly valid, as each installment of a SIP is treated as a distinct investment when it is initiated. As a result, only the first of your 12 installments have lasted longer than 12 months; the remaining 11 are still of a short-term character. Only long-term capital gains are exempt from STT payments.
Deduct tax appropriately at the source.
The Income Tax Act contains certain provisions that allow company proprietors paying for a good or service to withhold tax from their payments to the supplier. If an individual doesn’t, those expenses won’t be authorized, and they’ll have to pay more taxes as a result.
Electronic transactions
As per the income tax department’s rule, you are prohibited from paying any employee more than Rs 20000 in cash in a single transaction. You will also enter the scrutiny list of the tax department if you are still paying salaries in cash in this digital age.
We hope this article has given you some easy tips and tricks for tax savings for your business.
