No matter how big or small the business is, it strives to manage and control its long-term sustainability and profitability expenses. Hence, if you want to promote and maintain your business expenses, you must follow the tax system. The income tax means reporting your business’s credibility to the government and accounting for your business’s actions.
However, the tax system can also become a significant threat and stressful to your business if you don’t handle it properly. Hence, your company probably wears many hats, and the last thing you want is to give the government an additional portion of your income as tax.
We’ve compiled some essential tax savings tips that will save your money in the business and free you up from all the tensions and worries.
- Hire your relatives, family members, and friends
One of the best ways to save on the tax is to hire your family members in your business. You can pay them a salary the way you used to pay all the employees. If you employ a family member who does not have any other source of income, you can pay them less than Rs 400000 a year. Due to this, your relatives won’t have to pay any taxes on these earnings.
The salaries paid to the employees will be considered a business expense and can be deducted from the company’s taxable income. Therefore, it will reduce the tax burden of your company.
- Claiming benefits on Business loans
Most people think that taking a Business loan is a burden and cannot be beneficial, but they are wrong. A small business loan or taking a personal loan for business is a long-term asset. If you take a business loan, the interest and principal you pay will be deductible. As it is mentioned under Section 80C.
Apart from this, a business loan can provide you with various advantages. There are multiple situations when you can consider taking a small business loan. For example, if you are planning for an investment, thinking of expanding your business, or having challenges to meet the working capital requirements.
However, you can apply for it if you meet all the eligibility requirements needed to take out the business loan. It is also suggested that before you apply for it, you must check the interest rate on business loans to ensure it is feasible. If a higher interest rate is applied, the interest expense will be greater than the benefits.
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- Save Money for Healthcare Needs
You can reduce the income tax on your business by keeping aside the money for your healthcare needs. However, even if you think your health is good right now, you must keep saving cash for unexpected or future healthcare costs. Hence, if you have a high-deductible health plan, it may allow you to take advantage of a Health Savings Account.
- Keeping Records
Maintaining accurate records throughout the year is one of the easiest ways to ensure successful tax returns. However, if you fail to do so by any mistake, there may be repercussions. It can lead to an inquiry or investigation by the department. Hence you must keep the records of the account, till the period of limitations is over. This record can support your earnings, tax credit, and deductions that can be shown in the tax return.
Furthermore, it is important to keep the exact copies of your filed tax returns as they are also vital for your future tax returns. Hence to maintain your record of all your income and expenditures easily, an accounting software is recommended.
- Avoid late fillings
Filling your income tax returns on time can set present year losses from the future income. You can carry forward these losses for an unlimited period of 8 years. The business losses are then deducted from the relevant payment, reducing your future tax liability. However, you must know that you won’t get this benefit until you file the tax return on or before the due date. Late filing of the income tax can also lead you to a penalty.
These are some of the most straightforward tips and tricks to help small businesses save on the tax. The key to saving tax is always to be cautious of the income tax act and maintain proper expenditure records. If you file your tax return on time, the government can reward you with several benefits. However, you should always plan your financial savings and taxes wisely, and every little effort will make a difference.