These days every person wants to start his or her business. And why not? It is the best time to start a business. With the technology evolving all the time, every person feels the need to make his dream come true. However, while setting up their own business, most professionals forget or fail to pay attention to tax planning and investment. If you are one such professional then this article is for you! Keep reading to know a few tax saving tips that will surely help you go a long way.
Here are Top 10 Tax Saving Tips for Startups and Business Owners
1. Cash Payments
Try and avoid making cash payments of above Rs. 20,000/- to a single person in a day. According to the Income Tax Act, you are not eligible for deduction in expenses exceeding Rs.20,000/- if paid in cash. For instance, if you are carrying out some repairs or renovation in your office and paid an amount of more than Rs.20,000 in cash to a vendor on a single day, then you will not be allowed to get any tax benefits. However, some exceptions under rule 6DD of Income Tax Rules may allow you to avail deductions. So, thumb rule is to avoid cash payments above Rs.20,000/- on a single day.
2. Hire a family member
You can reduce your tax outgo by hiring a family member. If a family member is not earning, you can pay him a certain amount in the form of salary. For instance, if you pay Rs. 2 lakhs a year , you can set it off from the taxable income of you business. Thus, you can reduce the total tax liability.
3. Travel and Hotel expense
If your business involves travelling for meetings or networking within the city or outside it, you can write off these expenses as well. Always make sure to save the tickets or dining receipts as they can help you save a lot of money. You may choose to channel the money back in to the business.
4. Medical Insurance
As an entrepreneur, you can claim up to Rs.15,000 on medical insurance premium under section 80D of the Income Tax Act. However, this is applicable only if your business is a start up and you do not hold any other full time job.
5. Education Loan
If you have to pay off an education loan or are in the process of paying it, you may reconsider that amount as an expense. Interestingly, this applies to the loan that you may have taken for your children’s education. In fact, you can claim deduction for two children for their full-time education under section 80C.
6. File your tax returns on time
Regardless of the business you own, you must file your tax returns on time in order to avail benefits. The main benefit is to carry forward of losses the income you earned from business. You can carry forward the losses for almost eight years and set it off against the income in the years to come in case it cannot be adjusted in the current year. However, you can avail this benefit only if you file your tax returns on or before the due date.
This is the most commonly used methods to save tax. Ensure that all capital expenses such as furniture cost, computer cost, mobile phones, etc., done for business should be made in the name of the company. Moreover, certain equipment purchased can also be written off under depreciation. You can then claim depreciation for these expenses at a rate mentioned under Income Tax Act. The rate will depend on the asset you buy for the company.
Try and donate to charitable organizations even when you are starting off as a business owner. However, make sure that you donate to organizations that qualify for deductions under section 80G of the Income Tax Act. Also, try and procure a duly stamped receipt of the donation.
9. Utility expenses
Utility bills such as water, internet, electricity and phone can be major expenses to your company and can be written off as business expenses.
10. Office Rent
Typically, most start-up businesses either start out from homes or rented offices. In case you are staying in a rented premise and working from there, you can treat the rent as business expense according to the Income Tax Regulations. If you own the office premises and pay property tax for it, you can avail deduction on that amount.
In conclusion, it can be said that although filing your tax returns are very important, you can try saving some money through legal means. You may utilize that money for your start- up business in some way. Also, you will have to keep yourself updated with the changes in the tax rules and regulations made by the government.