There are only two things constant in the world- death and taxes. But there are ways to trim the taxes that you pay to the Bureau of Internal Revenue (BIR) that do not involve asking your accountant to falsify figures or not issuing receipts. In other words, there are legal ways to cut the taxes that you have to pay.
Tax lawyers Serafin Salvador Jr. and Martin Mijares share 7 ways to make sure you\\\'re remitting just the right amount of taxes to the BIR.
1. Book expenses that don\\\'t have to be paid until the following year.
According to Salvador and Mijares: "An enterprise on accrual basis may enter into contracts for various expenses--such as expenses for gasoline, merchandise and security services--with its suppliers (or) contractors, so that it can already accrue an expense deductible in the current year although payment is to be made at a future period." This means that you may deduct from your gross income for 2010 the purchase of goods and services you used for the year, although payment will not be made until 2011.
2. Accelerate tax deduction by reducing the depreciable life of buildings and other fixed assets.
"The taxpayer is allowed to adopt a plan or method of apportionment of the cost of the fixed assets provided it is reasonable and has due regard to operating conditions during the taxable period," the lawyers said.
3. Treat customs duties as an expense.
Companies that import equipment, raw material and other supplies normally book customs duties and taxes as part of the cost of the "instead of capitalizing custom duties and taxes paid on such importation, consider treating these amounts as expense in the period these duties and taxes are paid." Doing so will increase the total deductible from the current year\\\'s gross income.
4. Treat interest paid for the purchase of fixed assets as outright expenses.
According to the tax code, a company may treat interest incurred on the purchase of property used in trade or business either as an expense or as capital expenditure. When an expense is capitalized, it forms part of the cost of the acquired property that will have to be taxable over several years. To lower the income for the current year, increase the amount of expenses by claiming the interest as an outright deduction from gross in the year the interest is paid or incurred.
5. To increase the amount of deductible losses, write off fixed assets that are no longer being used.
There are instances when a company may be allowed to write off idle or obsolete assets that are not yet fully depreciated, and claim the amount as a deduction from gross income. Check with the BIR or a tax planner to determine the requirements for writing off fixed assets.
6. Establish and contribute to a pension plan.
A company can claim its contribution to its employees\\\' pension trust as deductions from its gross income. Say Salvador and Mijares: "By establishing and maintaining a pension trust, the employer may actually be able to advance the deduction for retirement costs pertaining to employees who will be retiring in the future."
7. Carry over the net operating loss.
The tax code allows an enterprise to deduct from its gross income the net operating loss of the business over three years immediately following the year of such loss, provided that there hasn\\\'t been a substantial change in the company\\\'s ownership. For instance, if a company lost P1 million in 2009, it can claim this amount as a deduction in the years 2010, 2011 and 2012.
Are you applying any of these tips to help you with your tax concerns? Watch for more tips on cutting your taxes the legal way.
For the next batch of tips, read 14 ways to trim your taxes (Part 2)