As a citizen who abides the rules of the country we are residing in, it is our obligation to pay taxes, including you. It is even more compulsory to pay taxes if you own a small business. Just like other businesses, there is also purposely not paying tax you have to pay if you have one.
However, if you are not careful, you might end up paying more than you should. For that reason, there is a method called tax planning. Tax planning is a way to pay taxes more efficiently by arranging your financial matter without breaking the tax regulations. In this article, we will help you do well in your small business with these steps.
What you need to understand about tax planning
Tax planning doesn’t mean that you can avoid paying tax or purposely not paying tax at all; we all know that’s illegal. However, we can make paying tax more efficient and reduce unnecessary pay, and that will be beneficial for you and your small business without breaking the rules. So, how does tax planning work?
There are ways you can make things work with tax planning. You can reduce the amount of the income that is taxable, lower your tax rate, and arrange the time when you must pay the tax, or claim any tax credits that are available. However, if you want tax planning method to be more effective, it is suggested that you also plan your personal income as well as your small business income for next few years.
This is important to know that even though you have tax planning covered that it may save tax dollars at one income, there may still be a larger tax bill at other income, so, you don’t want your “good plan” to be “ruined” by wrong income projections. The point is; estimate, estimate, and estimate!
Defer your income
You can “lessen” your “burden” by postponing your taxable income until next financial year (until after 30 June). If your account is tax-deferred, your taxes can be paid only at a future date, so that your company can “breathe” without having to worry about current tax implications, meaning that you can pay your tax at a lower rate next year.
Cross out your bad debts
It is suggested that you cross out all bad debts before 30 June, so that you can get a tax deduction. However, if you want to be allowed to write off the bad debts, first it has to be shown as income.
Bring forward your expenses
If you want to buy things like computers, printing, or office supplies for your company; make sure you buy them before 30 June. Not only will it reduce your tax bill, but you can also claim these back on your tax return.
Keep records of motor vehicle use in a log book for deductions
Certain deductions for operation and maintenance cost of your vehicle can be made if you use your car for business. Car expenses can be deducted through using actual expenses or standard mileage rate. It is even more efficient if you have two cars, as it can increase deductions, as long as you include both of your cars. Make sure you keep accurate records that are neatly written in a log book.
Maximize expenses for business entertainment
Expenses for business entertainment are legitimate for deductions and it can reduce your tax bill. Effective money saving, right? However, you have to follow certain guidelines for that. For example, if you need to discuss business with either your clients or your employees, make sure you choose a place or restaurant that is conducive and comfortable to talk business. Avoid places with things that can distract your business meeting, such as rock live-music, theatre, events, and many more. If you choose the right place, then you are entitled and certainly qualified for tax deductions.
That’s how you can save your money from unnecessary things included in your tax. This way, not only can you pay less money for tax (legally!), but it can also help you grow your business, and of course, without breaking the law! Make sure you pay attention to details, keep accurate records, and be honest.
A successful business is the one that can formulate strategic tax planning, and abide the law at the same time. If you can do this wisely, then your business will surely grow and achieve the success you want.
Daniel translates his passion for the digital world into his work. He truly believes that we are at the forefront of technology and is eager to see what the future holds for the public and businesses alike.