10 Tips for Reducing your Business Taxes

Meta Description: As a small business owner, tax deductions can be extremely helpful for you. You can wisely plan and reduce your taxable income. So, here are 10 tips for you to reduce your business taxes.

Business taxes are always a stressful job, be it for an organization or a small business. Nobody likes giving away their hard-earned money to the government. But, just like all other harsh realities, income tax is also one that business owners have to learn to accept. Even though there is no escape from this duty, you can figure out ways to reduce your tax liabilities.

Here are some tax reduction tips so that you can minimize your business taxes.

1. Hire a Family Member

Hiring your family member is one of the best ways to minimize business taxes.

Small business owners can also reduce their taxes by hiring their spouses into the firm. Since these taxes are a liability to the company, they can be left off from the taxable income and so bring down the total outgo of the business.

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2. A Retirement Account

Many retirement plan options have maximum benefits when it comes to retirement savings. They also have several tax benefits that can be very helpful. There are many options in retirement plans on the IRS website that can have a lot of benefits for small business taxes.

3. Utility Expenses

If you’re an entrepreneur who uses their phones and vehicles for legitimate business needs, then you can list these expenses as utility or business expenses. Some of these expenses can be preliminary expenses, convenience expenses, or regular expenses. This is one of the most useful tax tips, as when you list these expenses as business expenses, you are reducing the burden of taxes on your small businesses.

4. Hotel Booking and Travelling Expenses

Many times, entrepreneurs have to travel between places for work related to their businesses. A tip to reduce small business taxes is that in such situations, you should remember to use the company’s account for these expenses instead of your own.

For example, you earn Rs. 20 Lakhs, and you’ve spent around Rs. 5 Lakhs under this expense from your company account. In such a situation, the travel expense can take the form of a business expense and thus, be exempted from taxes. In this example, you’d only have to pay tax for the remaining Rs. 15 Lakhs.

5. Medical Insurance Premium

Entrepreneurs can claim their medical insurance premiums under Rs. 25, 000 for tax deductions. According to Section 80D of the Indian Income Tax Act, this falls under tax deductions, and this insurance can be for the entrepreneur’s dependent parents, spouses, or dependent children. But, such tax tips will be invalid for entrepreneurs whose businesses are their second job and whose employer already offers them medical insurance premiums.

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6. Invest your Profits in Marketing

In this age of digitalization, you need to get rid of the old outbound marketing ideas and shift to digital and inbound marketing for your services and products. This has two benefits.

Firstly, inbound marketing will grow your business and increase its reach. Secondly, it works as a tax reduction tip, as all your marketing expenses are tax-deductible. Therefore, you can save money in this aspect as well. So, invest any extra money you have left at the end of the year in advertising and marketing to reduce taxes.

7. Avoid Making Transactions in Cash

According to the Indian Income-tax department, your transaction will be nullified if your cash transaction, as per your books, is more than Rs. 20,000 per day for a single person.

This nullification will be an added burden on your small business taxes, and you will be paying more money than you would’ve normally. So, try and make your transactions above Rs. 20,000 through a bank. This will reduce the burden of tax from your back as you will pay the same amount you would’ve normally instead of the excessive amount.

8. Depreciation

Another way to reduce business taxes is through additional depreciation. This is because under section 35AD, if an entrepreneur installs new machinery during the year, then they can claim additional depreciation of up to 20% along with the normal depreciation. This is another tip through which you can reduce the burden of taxes.

For example, you buy new machinery and claim the regular depreciation, which is 25% but forget to claim the additional 20%. In this situation, you have paid increased taxes because of the 20%, and you’ve lost the chance to claim this additional depreciation since it is only valid in the first year. Therefore, remember this trick when installing new machinery.

9. Donation

Another great tax reduction tip is donating money to charity. This is a special tip, as you are performing a good deed and saving money on taxes at the same time. But, saving money on taxes through donation is only possible when you are donating to registered charities. You are entitled to claim 100% tax relief if you donate to political parties, PM Relief Fund, as well as registered charities.

10. Housing Loan Interests

One of the most effective tax tips is that you can claim a tax deduction on the interest that you pay for your housing loan if your PAN card is linked to your start-up.

According to Section 80C, you can claim a tax deduction of up to Rs. 1.5 Lakhs every year by adding the housing loan interests under this deduction. This tip should convince you to get a bank loan to build or buy a house, as it will reduce your tax burdens.

The Bottom Line

There are several ways to reduce business taxes as long as you plan wisely. Reducing your taxable income as the owner of a small business can be extremely helpful.