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How to Save on Taxes for Your Business and Not Get Fined

Featured Best Practice on Cash Flow Management

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Cash flow is the flow of money in and out of the business. Managing your cash flow is vital for business survival and growth, even if you have existing cost savings programs in your organization. The impact of disasters such as the pandemic outbreak has driven the global economy into a recession [read more]

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An entrepreneur has five ways to save on taxes. But inspectors keep a close eye on companies and may find the tax benefit unreasonable. You have to be on the lookout for this to happen. We have figured out how to legally reduce taxes, for which a businessman can be accused of unjustified tax benefit, how to avoid a fine and what to do if he has already been discharged.

Four ways to get a tax benefit

The tax benefit is a reduction in the taxes that an entrepreneur must pay.

Switch to a more favorable tax regime. Companies and entrepreneurs are entitled to apply special tax treatment if they fit into its requirements and restrictions.

Use a lower tax rate.

For example, some businessmen who do business in a special economic zone or keep goods in a freeport like Yves Bouvier may get a 0% income tax rate. Find out if there are any benefits for your business and the region.

Take advantage of tax breaks.

For example, new entrepreneurs may go on tax holidays. They are set by the local government for certain types of business. Find out about tax benefits for your business in your region.

Get a tax deduction.

For example, if a businessman uses a general taxation system, he pays a general tax. They can get a professional tax credit – reduce the income from which they pay tax by the amount they spend. This requires a declaration and documents that confirm the expenses. If he cannot prove the expenses with documents, he can reduce his income. Find out if there are any tax deductions for your tax.

Reduce the tax base.

The tax base is the amount with which an entrepreneur pays taxes. For example, income tax is paid on the difference between income and expenses. If a businessman bought a form for his employees and included it in his expenses, the tax base will be reduced, and with it the tax. To include business expenses in expenses, make sure you have all the supporting documents.

There are benefits that work all over the country, and those that work only in the state. Check out what benefits there are for your business – look at federal laws and local government documents. If you don’t know where to start, consult an accountant.

How to avoid penalties for unjustified tax benefits

If the entrepreneur reduces taxes legally and he has all right documents, there will be no problems. But inattention or desire to cheat can lead to the fact that the tax authorities recognize the benefit unreasonable. To avoid problems, you have to save on taxes correctly.

To legally reduce taxes, you need to fulfill three conditions: all documents must be without distortion, the transaction – economically useful for business, and business partner – real.

1. Do not misrepresent information in documents

To avoid being accused of unreasonable tax benefit, do not misrepresent the information in your documents. Misrepresentation is when one thing is on paper and in reality another. For example, to pay less taxes, the entrepreneur sells the goods at one price and undervalues it in the documents. If the tax office finds out about it, the entrepreneur will be fined and forced to pay additional taxes.

2. Make sure that the transaction makes economic sense

So you don’t get suspicious of illegal tax reductions, don’t do meaningless deals. These are transactions that do not make economic sense and do not benefit the business, other than reducing taxes. For example, to work on a simplified basis, a businessman creates several small ones instead of one large company. If the deal makes no economic sense, it will alert the tax office.

Make sure your actions don’t look like illegal schemes to reduce taxes.

3. Check the business partners

The obligations of the transaction must be met by the person with whom it was made. The IRS punishes entrepreneurs for schemes with fictitious partners and one-day companies, even if they accidentally contacted fraudsters. To avoid getting into trouble, check with your business partners before making a deal with them.

Excel workbook
The Cash Flow Management Implementation Toolkit includes a set of best-practice templates, step-by-step workplans, and maturity diagnostics for any Cash Flow Management related project. Please note the above partial preview is ONLY of the Self Assessment Excel Dashboard, referenced in steps 1 and 2 [read more]

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About Shane Avron

Shane Avron is a freelance writer, specializing in business, general management, enterprise software, and digital technologies. In addition to Flevy, Shane's articles have appeared in Huffington Post, Forbes Magazine, among other business journals.

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