If the scale of the business does not make it possible to switch to a simplified taxation system, some tools allow you to legally reduce income taxes.
Income tax can be reduced by reducing the taxable base. Reduction of income is not suitable for this purpose due to illegality and contradiction with the meaning of entrepreneurial activity. It remains to increase costs, or rather redistribute them.
So, for enterprises operating on the general taxation system, you can legally reduce the amount of income tax using:
- transfer of capital expenditures into current ones;
- transfer of fixed assets to leased assets;
- leasing;
- creation of reserves;
- write-offs of losses of past periods;
- offshore.
Converting capital repairs to current ones
In undertaking the overhaul of a building or equipment, it must be remembered that the cost of it will increase the cost of the building or equipment and this will be partially recouped through depreciation over time.
If you write them off immediately, you can reduce the tax in the current year. To do this, it is enough to conclude a contract with a contractor for the provision of current repairs and not major ones. However, caution should be exercised here, because not all costs can be classified as current and written off.
Transfer of fixed assets to leased
To reduce income tax in this way, it is enough to transfer fixed assets to another company. After which they are rented from the same company. This will allow write-offs to costs in the form of rent payments, and not partially over several years. The lessor company can be a small business you created with a simplified taxation regime.
Leasing
Leasing makes it possible to apply accelerated depreciation to the object. This allows you to write off larger amounts as expenses, reducing income tax sooner than in the usual way.
Creation of reserves
This method allows you to reduce the tax only at the end of the quarter, not at the end of the whole year. Such a reserve is a kind of “piggy bank”, in which the company accumulates money in small parts during the reporting period, to write it off in a single moment in a whole amount.
Write-off of losses of past periods
If the company was at a loss but turned out to be profitable in a certain year. This loss is transferred to the current year in part or in full.
Offshore
This method is suitable only for large companies since in offshore companies the amount of the fee is inversely proportional to the size of the authorized capital.
To legally reduce income tax, correct and competent work with the company’s costs is important. Without sufficient experience and qualifications, it is possible to massively increase all costs. Which as a result will lead to an increase in the cost. For this reason. It is not recommended to engage in income tax reduction on your own, but it is better to outsource the company to accounting support companies.
Such a company is Capital Tax Consultation, which has been providing Accounting Bookkeeping Services with high quality for more than 16 years and has won the market due to its reliability and individual approach to its clients. The company’s professionals solve all the problems that are associated with accounting and tax accounting at enterprises in any field of activity. Our many years of successful experience with many well-known companies are proof that we can be trusted.
Read More: 5 Mistakes to Avoid when Choosing a Small Personal Loan