Top 10 Tax Saving Tips for Entrepreneurs
Entrepreneurs and business owners are required to pay income taxes on the income generated by their business. This can be a considerable sum, and they are always looking for deductions and exemptions to minimize their tax expense. Income tax is one of the hardest things to understand. We have covered the following in this article:
1.Hire your relatives and relatives
Hiring family members can be an important step in reducing taxes. They can be paid wages as other employees are paid. If the family members who are hired by the company have no other income, the company can pay them only Rs 2.50,000 per year. This will ensure that they are not required to pay taxes. Since wages paid to employees are a cost to the business, they can be offset against the taxable income of the business, thus reducing the overall tax expense of the business.
2.travel and accommodation
It is common for entrepreneurs to travel to places for business purposes. This is done more broadly if the entrepreneurs have branches in several cities. If you want to save taxes, the next time you travel, book your travel tickets and accommodation on behalf of the company and not on your account. This is considered a business expense and can be deducted from the company's tax base.
3.Invest more in marketing
If you are still using the old ways of marketing, then it is time for you to implement digital marketing as it helps you reach more potential customers and thus increases the likelihood of finding new customers. This will also benefit you from a tax point of view, as marketing expenses are eligible for tax deductions. Therefore, increasing your marketing budget is not a bad idea.
Business owners who use their vehicles and phones can show that these expenses are utility expenses. For example, expenses on phones, vehicles, parking fees, driver's salary, etc. are reclaimable if done solely for commercial purposes. If you are operating your home, then electricity costs are also claimable. This will help reduce the tax burden. The following are some of the utility expenses that can be claimed for deductions:
i) Preliminary expenses: All expenses incurred before the establishment of the business are eligible for deductions under Section 35D of the Income Tax Act. These are recorded as preliminary expenses and are deductible from the tax base for five years.
ii) Convenience Expenses: If you use a lot of vehicles and telephones for business purposes, these expenses are deductible as business expenses according to the company book.
iii) Regular expenses: If you are operating your business from home, you can deduct electricity expenses under the "company boss". Also, you can deduct the expenses incurred due to the internet connection and the rent is also deductible. Depreciation of all capital expenditures is also eligible for tax deductions under "business income." You must make capital expenditures on the business account and claim depreciation to reduce your taxation.
5 health insurance
Premiums of up to Rs 25,000 paid for health insurance can be claimed for tax deductions under Section 80D of the Income Tax Act 1961. You can cover your spouse, children, and parents under it. This is not applicable if you run a startup in parallel with a full-time job where the employer provides health insurance coverage.
6.Reduce taxes correctly at the source
There are specific clauses in the Income Tax Law by which entrepreneurs who buy a service or product can deduct the tax at source when making payments to the seller. If a person does not do so, those expenses will not be eligible and will result in an additional tax burden. For example, if you make a commission payment of Rs 3.00,000 to an agent and do not deduct the tax at the rate of 10%, the entire Rs 3.00,000 will not be allowed when determining taxable profit.
Donating money gives you not only the satisfaction of doing an honest deed but also Tax Planning benefits. To save taxes when making donations, you must donate to registered charities and funds such as the PM Relief Fund. You can also donate to a recognized political party to claim tax breaks.
8. Home loan
You are wrong if you think that buying a house with a bank loan is not beneficial. it'll be a long-term asset and may appreciate significantly over time and comes with tax benefits. You can claim tax deductions of up to Rs 1,50,000 a year under Section 80C of the Income Tax Law if you have linked your PAN with the company.
Companies operating in the manufacturing sector receive additional tax benefits. Businesses (per Section 35AD) that install new equipment and machinery installed during one year can claim up to 20% additional depreciation on top of regular depreciation in the year they were put into use. For example, if you have purchased new machinery and claimed 15% normal depreciation and have not claimed additional 20% depreciation, you end up paying tax on the unclaimed 20%.
10. Digital transactions
In this age of dealing with things digitally, it would be unwise to pay your workers in cash. Plus, you'll be on the income tax department's red list. If you make a payment of more than Rs 20,000 in one cash to a person, it is not allowed in their account books. For example, if you pay a worker more than Rs 20,000 in cash in a single day, the income tax department will consider that transaction to be void. Therefore, your taxation increases. Therefore, it is always advisable to pay your workers by bank transfer.
A rupee saved is a rupee earned. When there are several tax-saving provisions, it is advisable to make use of them. Implementing tax-saving practices will pay off in the long run.