Paying taxes is an essential part and a liability of a business, thus taking care of it is very important. For small businesses it can proved to be a nightmare if the due care is not taken care of in advance, as capital is the main aspect for these businesses to grow. Thus tax planning becomes necessary in order to reduce the tax liabilities through various methods.
For this there are two major points to be taken care of which are as stated.
A small business can also save up or can reduce the tax obligations by taking few steps and adopting various taxation methods as stated below.
So let’s identify. as to what are the methods of tax reduction for small businesses:
Higher limit of capitalization: Setting a high limit with regard to the level of cash being spent on assets which would be perceived as a fixed asset. Hence, a bigger level of expense is considered as expenditure in the present time-frame.
Accelerated buying of assets: There might be cases wherein it would make sense in acquiring assets sooner than is essential. For instance, in case a fixed resource does not have an effective proficiency level or would be breaking down quickly, think about supplanting it with the best and latest assets. Doing as such would be increasing the costs of depreciation. However, it would likewise offer companies with a better and improved upper hand.
Writing off inventory: Make a review of the inventory only before the year ends. Also, remove all the things which are out of date. The expense of the items which are eliminated would be added to the expenses of the goods being put to sale and hence, would be reducing the income which is taxable.
Writing off Receivables: Make a review of the trade receivables as well as all of the other kinds of receivables before the end of the year. Also, whatever cannot be collectible need to be written off. This would help in reducing the income which is taxable.
Added Debts: In case there is a choice to be made amongst whether to make an added equity investment in business or attaining debt for meeting the fund requirements, you need to be using debt. When one would be doing so, the interest cost which is related could decrease the income which is taxable.
By structuring the tax planning in advance a small business can gain numerous benefits and can save as well. To know more about various Methods of Tax Reduction for Small Businesses contact Meru Accounting today!