The owners of small businesses and the freelancers become terrified of the tax liability when it comes to filing the tax return. When starting a small business, you must be aware of the tax liability and possible claims for your expenses. A proper accounting and filing system is essential to make a tax claim. If your business grows in the first year, you must solve many issues in your store. As a business owner, you must update your knowledge about your tax liability and claims that you are entitled. If not, you might lose money by paying more taxes and not claiming your entitlement. Therefore, you must meet with an accountant to discuss your savings, business expenses, and liabilities.
What are allowable costs?
There is no need to pay tax on allowable expenses you spend on your business. The costs you incur to run your business will reduce the profit by that amount. But those expenses must be acceptable. For example, if your total income is $25000 and you spent to run a business $10000, your taxable profit is $15000. However, only unavoidable expenses are allowable, so learning what is permissible and what is not is essential. A home-based business can claim a percentage of the costs incurred for your business.
Ways to reduce tax
We are hiring staff for your business.
Hiring self-employed people save you payroll taxes and hires your family members to carry out tasks. This way, you can reduce your higher rate of taxes.
Deferred income
It is helpful if you postpone the receipt of your income after the period of your tax calculations. But you must consult your accountant about the impact on your business accounts. Deferring income depends on your profit and loss account and the balance sheet for your business.
Charitable donations.
When you pay charitable companies, you can include that in your tax return as deductible expenses.
Office Supplies
Maximize your office expenses, such as purchasing equipment and other supplies. If you buy those things in advance, you can use them for your annual return in the current year.
Travel expenses
You may travel a lot and use overnight accommodations for your business meetings. You could claim the travel expenses and charge your mileage if you used your car. The money you spend on food when you go out on business is an allowable expense that comes under subsistence.
Payment of bills
Pay bills due in the financial year before the end of the period to reduce your profit, which also lowers your tax liability. Make the proper plans with your accountant to avoid any issues, and you want to ensure everything runs smoothly. If not, your business might get investigated by the tax office because of tax avoidance.
Retirement plan
Select a retirement plan and make the payment due before the period ends. You need to check with the accountant about the limits, as there could be a limit on the taxable amount. It will reduce the profit and the tax due as well.
Final words
The expenses for your home business are allowable, but you can claim a percentage of the total. For example, your premises cost of 25% is deductible, depending on your business type. You can record all your transactions within a fiscal year using the cash system. Then with the accrual system, you can defer the income for the period to reduce your tax. You will be better and safe taking professional advice when setting up a business.