Manage your finances better with ethical and legal ways to reduce your taxes.
In business, every centavo counts. When it’s about the bottom line, the smart businesses are the ones who study their liabilities and minimize them as much as possible. You shouldn’t let expenses drain your finances if there’s a way to manage them better.
This is where tax planning comes in. It means that you handle your finances to reduce your tax liability, or the total amount you need to pay the government. If you do your tax planning well, you’ll be on your way to tax avoidance. Which, by the way, is completely different from tax evasion.
Although they sound like they’re referring to the same thing, they’re not. The biggest difference between the two is that tax avoidance is completely legal.
In tax avoidance, you’re making use of your tax benefits to lower taxes for your small business. In tax evasion, you’re deliberately reducing your tax liability by lying or omitting numbers when you file your taxes.
That’s why you would want to do tax avoidance. That’s how you can ethically and legally reduce business tax in the Philippines. But what are the ways you can actually do that?
What even is an allowable deduction? It’s any necessary expense a business must make to create an income.
If you keep track of all your operating and overhead expenses, you can claim them as allowable deductions to reduce tax legally.
Of course, the allowable deduction must meet certain criteria: It must relate to your business, while still in the reasonable amount and complying with the withholding tax requirements, supported by documents and not contrary to law.
For example, if you needed to fly to another city to close a deal with a client, the travel expenses (transportation and accommodation especially) are considered allowable deductions.
Here’s a list of allowable deductions:
* Has withholding tax
Yes, there’s the retirement and medical benefits with SSS and PhilHealth. But another way to reduce your taxes is to put your money in health insurances.
This is an ideal benefit for you and your employees that can help your taxes. The government considers the amount deposited to medical insurance as a type of expense. You may report both your and your employees’ insurance payments in your books.
This exemption comes under some conditions. One of which is that the maximum non-taxable amount for health insurance is PHP 10,000.
In the eyes of the government, you’re making less money. While that’s true, you can think of it this way: you’re saving up from reduced taxes while also setting aside money for emergencies you and your team will benefit from. It’s a kind of savings any business needs.
In terms of taxation, donating to charity is similar to getting a retirement plan. You’re putting your income somewhere else — in this case, charity — and lowering your income. Charitable donations are considered to be a deductible, which means the government considers your income lowered. It doesn’t hurt that you get to help others either.
If you’re running a business, you probably already know this. But we still cannot stress this enough. You must take your accounting seriously.
If you think you’re still not familiar enough with bookkeeping, hire someone you trust but also knowledgeable enough to do the job well. That way, you can maximize your tax deductions and report your taxes correctly.
With the implementation of the TRAIN Law, some of the other legal ways to reduce your taxes, such as declaring dependents and personal exemptions, are off the table. In the end, each of us as citizens must pay our taxes to contribute to the country’s growth.
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