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How To Plan Tax Strategy

The document discusses nine legal ways for businesses to reduce taxes including deducting legitimate business expenses, writing off bad debt expenses, hiring family members, taking note of withholding tax rules, deducting inventory losses, qualifying as a micro business, making donations, availing of retirement plans, and keeping good records.

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Rezel Funtilar
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68 views3 pages

How To Plan Tax Strategy

The document discusses nine legal ways for businesses to reduce taxes including deducting legitimate business expenses, writing off bad debt expenses, hiring family members, taking note of withholding tax rules, deducting inventory losses, qualifying as a micro business, making donations, availing of retirement plans, and keeping good records.

Uploaded by

Rezel Funtilar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Taxes are the lifeblood of every governing body that has ever

existed since time immemorial, and it’s safe to assume that it will
be around far into the foreseeable future. Paying the correct
amount of business taxes (no matter how high they may be) is a
responsibility that every entrepreneur must shoulder if they wish
their enterprise to prosper without the dreaded knock from the BIR.
But did you know that there are legitimate ways to lower your
business tax bill that are well within the bounds of the law? And by
“legitimate”, we mean that you won’t be labeled as a tax evader.

Legal Ways To Reduce Tax


There are two ways to reduce taxes: Tax Evasion and Tax
Avoidance. While they both have the same objective, they are
different in the sense that Tax Evasion is illegal while Tax Avoidance is
legal.

What is Tax Evasion?


 Tax Evasion when a taxpayer employs illegal ways or outside the
lawful means to reduce taxes or avoid paying taxes at all.  One
element of tax evasion is that the taxpayer must have an
accompanying state of mind that he is evading his taxes in bad faith
or that he willfully, deliberately, and by no accident, evaded to pay
his taxes.

What is Tax Avoidance?


Tax Avoidance is when a taxpayer tried to reduce his taxes within
the means allowed by law. It is made in good faith and at arm’s
length; otherwise, it won’t be regarded as such.

How Can You Legally Reduce Business Taxes? How Is


Tax Avoidance Done?
Now that you know that it is possible to reduce your business tax
without being charged with tax evasion cases by BIR, here are a few
ways of tax avoidance or ways to avoid paying excess taxes, the
legal way:
 
1. Book Legitimate Business Expenses as Tax
Deductions
Depending on the nature of your business, it’s possible to mix
business and leisure while charging the latter as tax-deductible
expenses. If your business requires research and development, you
can include a business mission on your next vacation trip and then
charge the travel expenses to your business. Restaurant bills can be
charged as representation expenses, so make sure that you collect
your receipts when meeting with prospects or business partners to
claim that deduction.
2. Bad Debt Expenses Can Be Written off from Your
Books
For business owners with delinquent customers who don’t pay on
time or fail to pay for more than a year, these account receivables
can be considered as bad debt. Examine the fine print on your credit
policy to determine if such accounts qualify.
 
3. Hire Family Members and Relatives
Your business can save on taxes this way because their salaries may
be deducted from the taxable income.
4. Take Note of the Expanded Withholding Tax Rule to
Avoid Double Taxation
Because of this rule, some of your customers are obligated to pay
your income taxes on your behalf, which requires them to withhold
a portion of their payment to you. To claim these against your
income tax payables, you need to collect the BIR Form 2307 from
your clients and present this to the BIR when you file your taxes.
 
5. Losses Due to Inventory Theft Are Tax Deductible
If the nature of your business involves keeping an inventory of
commodities or merchandise, robberies or losses from obsolescence
merit a tax deduction.
 
6. Find out If You’re a Barangay Micro-Business
Businesses with total assets of less than Php3 Million qualify as a
Barangay Micro Business enterprise, where you may avail of
benefits like a 100% income tax exemption, or even exemption from
minimum wages or lower taxes if you live in certain locales.
 
7. Donations Are Tax Deductible
The tax-deductible percentages will vary, based on certain
guidelines: the full amount of your donations to accredited non-
government organizations are tax-deductible, while tax deductibility
of donations to non-accredited NGO’s will be limited to only 5% of
the taxable income for corporations, and 10% for sole
proprietorships.
As long as you keep a detailed account of your books, safeguard all
of your receipts, always identify your expenses properly and know
your tax code, you will find perfectly acceptable ways to keep your
business tax expenses low and not be charged with tax evasion.

8. Avail of Another Retirement Plan


Even if there are already mandatory government plans for
retirement, it is wise to avail of another one to reduce your taxes
(i.e. from work). The idea is this – the most basic way to reduce
taxes is to lessen income. Of course, it doesn’t mean that you
should quit your high paying job and take one that pays less. The
point is, if you avail of another retirement plan at work, in paper,
you seem to have lesser salary because your gross income is
adjusted (lessened) due to your contribution for a traditional IRA
(Individual Retirement Account). From this, there is a down side –
you receive less every pay day. But to think of it, it’s not half bad
because you will receive a whole lot more when you retire.

9.

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