A company always ensure that it pays the correct but minimum amount of tax possible. Getting a corporate tax return wrong can end in penalties.The entire process of tax return and legislation is complicated. As Benjamin Franklin said “tax is one of the perpetual certainties of life’. None of us are totally unaffected by taxation. How much we earn will be charged to income tax and much of what we buy is subject to VAT. The tax code allows you to subtract costs of doing business from the gross income and whatever is left is the net business profit.
Every business should know as how to maximise their deductible business expenses to reduce their taxable profit. Here are some of the key points to save your tax:
Invest before deduction limits are cut:
Take advantage of the section 179 deduction that allow a business to deduct expenses for several capital equipment purchases such as business software’s, computers, furniture’s, vehicles or manufacturing equipment’s. This means if the company makes any purchase before the end of the year, they may be able to deduct most of their outlays for capital equipment’s. Even if the company do not think that they need to make new purchases, they can review their inventory and equipment and use them at the year end to replace the obsolete assets. Also make sure to talk to your tax advisor or accountant for more specifics.
Defer your income:
If the company wants to be in the lower tax bracket deferring income is a good idea. Billing late somewhere in December will defer your taxable income. If the company cannot defer income or wages of their employees, they can consider delaying the payment of bonus until the New Year. If the company can operate on a build-up accounting basis they can claim a deduction for the bonuses even though the bonuses aren’t paid until next year.However, the bonuses must be rewarded within 2.5 months of year end.
Vehicle and travel expenses:
There are numerous deductions from vehicle as well as travel expenses. Not only can you deduct 48.5% per mile for business trips but also can deduct tolls paid during the trips. Expenses related to business travel including expenses for hotels, airfares, cab fees or rental cars are deductible. Moreover, you can also deduct the expenses of a business associate travelling with you provided he/she is professionally involved with you in the business. However, make sure that all the receipts are kept.
Work-related education can also be deducted provided such education courses improve job-related skills. Companies can deduct employees’ educational expenses if such courses are applicable in the job. In addition, transportation to and from the classes may also be deducted.
Keep the business records organised:
Knowing what records to keep and for how long can save the billable hours especially when the tax session rolls around. The types of record to keep and how long to keep them depends on the following items involved –
Keep copies of income tax returns for a minimum of three years. However if it is suspected that no return has been filed there is no limit on the number of years the file can go back for examination. So it is better to keep the copies of tax returns for an indefinite period of time
Keep records of the costs of assets purchased such as confirmations of securities purchased or receipts of equipment purchased. The records are needed to figure out the basis of assets used for determining the gain or loss upon a sale
Keep records relating to meal and entertainment for maximum of three years from the filing of the return?
Keep records of employees for at least four years. These records include:
* Date and amount of all payment to the employee
* Time slips of employment
* Copies of employment tax return
* Employee information such as name, address, date of employment or social security number.
If your company is looking for tax advisor you can contact Wisteria chartered accountants in London who will offer you proactive services in terms of high quality and specialist tax advice in all areas of corporate taxation.