5 Ways to Reduce Taxes Legally
Alexey Slyusarev shares five legal ways to optimize the tax burden of a business – from applying a tax break regime and selecting a profitable tax system, to dividing an organization into several companies
Each entrepreneur has the opportunity to take advantage of the benefits provided by the state in the form of benefits and deductions and reduce their taxes in a legal way. This is possible with a competent approach to building a business structure and accounting.In this article we will discuss tax optimization issues, however, it should be noted that it is possible not to hide your tax obligations, but to legally reduce taxes if you use the nuances in the law.
So, here are a few options to help legally reduce your tax liability:
Tax holidays for a number of entrepreneurs.
Timely receipt of documents from suppliers.
Payment of part of the cash to employees in the form of compensation.
The choice of taxation system taking into account the specifics of the business.
Dividing a business into several companies (legal business fragmentation).
Tax holidays for a number of entrepreneurs
The first option involves tax holidays for entrepreneurs. In a number of regions, tax holidays have been introduced for entrepreneurs who are registering their business for the first time. This means that for two years you will not pay the main tax. However, the right to use this benefit can only be exercised by taxpayers who comply with three conditions:
Registration of individual entrepreneurs for the first time after the law on tax holidays has been adopted in your region;
The direction of business refers to one of four areas: manufacturing, social, scientific or the provision of domestic services to the population. Also, regional authorities can establish other types of activities for tax holidays;
The choice of taxation system to apply (simplified or patent taxation system). There is a special condition for the patent system: if you take a tax patent less than a year, then your tax break will be shorter than two years.
It is also necessary to pay attention to restrictions. Regional authorities may impose restrictions on business lines, taking into account the number of employees or the amount of income, in the presence of which it is impossible to work in the tax holidays. It should be remembered that the right to tax holidays will be valid until 2021.
Timely receipt of documents from suppliers
The second option – the timely receipt of documents from contractors – directly affects taxes. How timely receipt of documents affects tax payments can be explained by examples.
You work with VAT and paid the advance payment to the supplier. By the amount of VAT from this advance, you can reduce your VAT payable. To do this, the supplier must issue you an invoice, without which there will be no deduction. But the supplier may simply not write it out (sometimes it happens), or it will be lost at the post office, or it will arrive late when you already pay the tax for the quarter. Bottom line: there are no invoices, and you pay more VAT per quarter. And they could put this money into circulation.
You apply the STS “Income minus expenses” and included in the declaration for tax calculation all the amounts that were paid to suppliers. These are your expenses. But if you do not have consignment notes, acts or other documents from the counterparty, then there are risks. The tax authority may request these documents: it needs to confirm that you actually delivered the goods or provided the service on account of this payment.
The result of this situation: the tax will accrue tax and penalties if you do not have documents for expenses.
Summarizing the above, on time receiving documents from suppliers, you legally reduce tax payments. Moreover, immediately in the current period, but do not transfer this to the future. Therefore, if you establish an operational exchange of documents with contractors, there will be more money in circulation, from which the development of the business follows.
Payment of part of cash to employees in the form of compensation
The third option for legitimate tax cuts is the payment that you provide to employees in the form of compensation. An example is the payment of employees who are not taxed. With this method, the employer will be able to motivate employees, as well as reduce taxes legally. It is beneficial to everyone. It is worth considering that with the amount of compensation, the employer does not pay insurance premiums for pension and medical insurance, and employees do not pay income tax.
Such compensation payments include:
Lease of transport from an employee and compensation of expenses for its operation. However, it is only about when an employee uses his vehicle for work purposes.