Everyone prefers paying lower taxes. This is particularly true for entrepreneurs who have thousands of other ways to use funds--be it for expansion, additional employee benefits or product development. Now, while it may be tempting to falsify books or evade tax payment, common sense will tell you it\\\'s not the smartest thing to do. What is wise is to be aware of legal ways to trim taxes. Here\\\'s the second batch of tips on how you can do just that.
8. Choose the recipients of your charitable donations.
Companies and even individuals usually get a lot of solicitation letters from various charities. To receive a tax benefit when contributing to a particular cause, consider giving to organizations that are allowed by law to accept donations that can then be deducted from taxable income.
9. Consider the legal structure of the business.
The organization of the business has a huge implication on taxes if the taxable income is P500,000 and below. At this level, an enterprise registered as a sole proprietorship will be slapped an income tax ranging from 5 to 30 percent. On the other hand, if it were set up as a corporation, it would have to pay a flat rate of 32 percent regardless of whether the taxable income is P100,000 or half a million.
10. Amortize pre-operating expenses.
Startup companies are allowed to amortize their pre-operating expenses over a period of five years. For example, if an entrepreneur spent P100,000 to set up his company in 2009, he can subtract P20,000 from his gross income in each of the five years from now till 2014.
11. Properly substantiate all deductions.
A major reason why taxpayers end up paying so much in taxes is due to poor substantiation for allowable deductions. For transportation and travel expenses, substantiate the claim for deductions with documents containing information about the date of travel, its purpose, persons who incurred the expenditure, places traveled, amount of expenses, and means of transportation used.
12. Withhold the necessary taxes.
Income payments—such as salaries of employees, rental of office space, and payments to suppliers—are considered valid expenses only when withholding taxes have been properly deducted and remitted. An entrepreneur must be firm with suppliers who request that taxes not be withheld from their collections. Companies that fail to withhold taxes from payments to suppliers will not only be required to pay the withholding tax themselves plus surcharge and interest; they will also be disallowed from claiming such payments to suppliers as deductions from their gross income.
13. Declare your input tax.
A businessman will enjoy a deduction if he declares the amount of merchandise he uses for his business. Let’s say the business is an office supply store. All you have to do is declare the total amount of VAT you paid when you purchased your supplies. This amount will be deducted from your own VAT.
14. Comply with all the requirements.
Aside from ensuring that proper withholding taxes have been collected and remitted, make sure that your company has complied with all other requisites for deductibility. When claiming deductions for bad debts, for example, be prepared to prove that the company has exerted all efforts to collect the debt. Be ready to support claims for bad debts with letters to the delinquent customers, reports from collection agencies, and rulings from the court.
To see the first batch of tips, read 14 ways to trim your taxes (Part 1)