Â Confusion about taxes? Here are some helpful Tax Tips
Confusion: is the only word that comes in the mind of entrepreneur when itâ€™s time to file their Income Tax return. It is a question of smartness for you, in order to pay no more taxes than youâ€™re legally required to pay.
A good tax preparer can guide you, but it is your responsibility to save receipts and keep a track of expenses throughout the year.
Steps to efficient tax planning If you have close relatives or family members who can contribute to your business in helpful ways, you can hire them legitimately. In broad terms, you will be shifting a part of your income to your family member while also saving on taxes.
Your business will avail of a deduction under â€œcompensation to an employeeâ€ and the amount of taxable income is reduced automatically. The concept of HUF (Hindu Undivided family) can also be used for tax savings.
Deductions One of the principal reasons small business owners pay more taxes than necessary is that they donâ€™t take advantage of all of the deductions theyâ€™re legally allowed. Often that happens because they canâ€™t prove they are qualified. The most common deductions for small business owners include entertainment, travel, meals, capital assets, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a record with daily entries that tie into receipts and other records.
Further deduction especially encouraged by the government must be enjoyed- For Example – normal deductions like those included in section 80 C should be availed. As an entrepreneur, you can avail of deductions through investment in PPF, Equities Linked Saving Plan, National Saving Certificates and certain kinds of fixed deposits.
If you are living and operating on rented premises, claim your rent as deductible under section 80GG. If you have purchased a house, deductions up to 1.5 Lakh can be availed on interest on loan if any. Click here to read more on benefits relating to joint housing loans-Benefits of Joint ownership of loan and property
You can also claim educational fees or tuition fees for your childrenâ€™s education. The sectional limit is Rs.1 lakh in this case.
Traps Thereâ€™s no easy way to say this: A small business owner may do some things that are more likely to get CBDT attention than others. For example, claiming deductions that exceed your income for more than one year is a definite red flag. Thatâ€™s not to say you shouldn’t claim every deduction youâ€™re entitled to claim, only that you should be especially careful when you do so.
Retirement You ought to save for your retirement from your income each year right? Why not invest in tax-deductible retirement plan. If you do, the funds paid into the retirement plan are deductible for both while investing and tax-free when you receive the money at retirement.
Expenses Keep a daily diary or log of your expenses throughout the year. It will be less intimidating to prepare your return and easier to identify all legitimate business costs if you have a log thatâ€™s up-to-date and detailed.
Bad debts Doesnâ€™t it sound weird to pay taxes on income that you didnâ€™t even receive? Be sure of claiming deduction for any Bad Debts incurred. A bad debt is only deductible if the income has been declared. A business owner bills a client in December 2013 and declares that income on his 2013 return. By the end of 2013, he realizes he will not be paid by that client. So in 2014, he can take a bad debt deduction for the income previously declared. If that income was not declared, he can’t take the bad debt deduction.
Contributions As a gesture of humanity many small business owners donate goods or services to charitable organizations throughout the year. Be sure to get legitimate receipts and valuation for any cash and non-cash items your business donates to charity so youâ€™ll have the records you need to support the deduction for your contributions.
Help If you are unsure about anything related to your tax obligations under the law, you should seek professional help from a certified chartered accountant.Â Meeting with your CA from time to time and go over your specific situation will allow him or her to best advise you on what to do to keep your tax bill, and the stress over it, as low as possible.
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