There are very few business people that spend their days thinking up ways to pay more in taxes to their government. In fact, the majority spend significant time every year seeking out accountants and tax professionals to help them minimize their tax obligations.
This is an understandable pursuit, as every dollar, pound or rupee that heads to the government represents resources that could be used to outperform the competition.
If your business is looking for ways to minimize your personal and corporate tax burden, here are some strategies to consider:
Have Children? Consider Funding Their Education
Your highest paid employees will be impacted by heavy taxes from the government. Unfortunately, the price of success is high taxes. While your executives may have a target on their back when it comes to paying taxes, there are legal strategies available to help them preserve more capital for providing a quality education to their children.
There are very few countries that fail to provide education-related tax concessions. Whether it’s the “…tax benefit under section 80E of IT Act…” (Credit Sudhaar) for student loans in India, or the establishment of a Coverdell ESA in the United States to eliminate taxes on education savings, there are a ton of opportunities to cut your effective tax-rate by investing in education.
Structure Corporate Office Purchases and Leasing to Maximize Tax Savings
For the business itself, tax liability can be better managed by considering the various tax benefits provided by securing office space to work and innovate. For example, while it might be tempting to go out and purchase an office or even a building to conduct business, according to Savoy Stewart, “…renting office space can often be claimed as a business expense and hence entirely deducted from your taxes [in the UK].”
Of course, purchasing office space can also serve to help minimize tax expenses. The business expenses required to maintain an owned building can provide some tax relief, although the annual property taxes could wipe out those benefits.
For those entrepreneurs working from home, there are also some great tax breaks for that “home office”.
- In the United States, the IRS allows work-from-home entrepreneurs to deduct the portion of their living expenses associated with work activity.
- To calculate the deduction, measure the space utilized exclusively for work activity and calculate the percentage of space that represents in your home. That percentage is the percentage of living expenses that can be deducted on your tax return.
- Use your vehicle for work-related travel? Don’t forget to log your work-related miles and deduct that transportation expense from your tax return.
- Hold onto the receipts for office supplies and use them as itemized deductions on your tax return.
Business Formations and Structure
The structure that your business takes will have a massive impact on the tax liability of both the business and its principals. Different corporate formations will require all profits to be disbursed to the partners before taxes are calculated, while other Articles of Incorporation can be filed to provide a taxable framework for keeping profits within the business entity. Consulting a competent tax attorney in your region is highly recommended.
You should approach the conversation with your tax advisor and/or attorney with the objective of minimizing total tax liabilities. For example, formation of an S-Corp in the United States eliminates the potential for double-taxation. Where a C-Corp will have revenue, profit and loss taxed at a corporate level, income from an S-corp only hits profits when funds are passed through to the proprietor of the business.
The only limitation on an entrepreneur that’s focused on legally reducing his or her tax burden is the depth of their knowledge. This is why hiring experts is so critical. Whether it’s leveraging company-owned property, or altering the Articles of Incorporation, there are virtually thousands of decisions your startup makes that will directly impact the tax burden of the organization and its Founders. Don’t make the mistake of being stuck with a bigger tax bill than absolutely necessary.
Consider how your business is structured. Self-employed entrepreneurs working on a shoe-string budget must take the time to look at their workspace and identify deductions. Keep the receipts for everything and consider spending the money on qualified expertise to maximize tax savings and keep more money in your pocket.
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