8 ways to reduce Profit taxes
By Harish Rao
Did someone say reduce tax? When you run a profitable business, hearing someone say ‘Tax reduction’ is enough to make you set your beer mug aside and go sprinting to where you heard the magic words.
I want to give you not one but 8 ways to reduce profit taxes for your business come September 30. Because like Lay’s chips we know ‘You just can’t have one!!!’
1. Know all your possible deductions
Many are unaware what kind of expenses can come under the deductions a small business owner can make as company expenses. Two of the expenses often ignored as deductibles in the company are:
Mileage costs for a personal vehicle is a great way to charge the company as expenses to reduce tax. So, every time you fuel up be aware that you can claim the whole or a portion of the costs from your company. Ask your accountant more on this.
Medical expenses not covered by the insurance plan for you and your immediate family. In the unfortunate event of a hospitalization, there is always a bothersome chunk of the bill not covered by your insurer. Be at peace knowing that this is something that can be deducted too from your business profits.
2. Deductions on home office expenses
For most small business owners, having a home as office is normal. We don’t have any advice on what you can do to avoidyour little one running infront of the camera during an officialzoom call. What we can advice you though, is to claim as business deduction all the rent and utilities bills (prorated based on square meters) incurred in respect to the home office. Additionally, all expenses related to home office including office furniture, computers etc. can be claimed.
3. Getting a company car
When you invest in a company car, 15% of the catalog value is added to your annual salary. Cry not, because the benefits for you and the company far outweigh the 15% cost and the additional taxable salary. All expenses of the vehicle including repairs & maintenance, fuel, road tax and insurance can be claimed on the company. Not just that, the investment can be depreciated over 5 years.
4. Getting a company phone
When the company invests in a phone for you as a small business owner, NAf 480 is added to your annual salary. That means you pay additional taxes on NAf 480. But the good news is that here too, all communication costs including the cost of the telephone can be claimed on the company. This will outweigh the additional taxable salary because of the phone purchase.
5. Creating a Pension reserve or fund for your retirement
One cannot emphasize enough the necessity of a robust pension fund for the later years of life. What you would not have known however is that, the entire pension reserve or fund can be claimed as an expense on the company.This is a true double whammy for you. At the end of a few years you would have a sizeable nest egg along with tax savings year on year.
6. Creating a Cessantia provision
Our loyal employees contribute a lot towards the growth and profits of the business. Cessantia is a built- in compulsory payment feature of the government, to make them feel safer in case of a job loss due to no fault of theirs. No doubt it’s a great idea! But then, as an employer should you suffer the brunt of it? Good news is no! Cessantia must be paid to all employees on their termination or retirement. A reserve can be created for it and claimed as an expense on the company.
7. Single shot amortization of small investments
When it comes to amortizing the investments over long periods, It’s our advice to expense all investments lesser than NAf 5,000 at one shot instead of amortizing it. This not only increases expenses but also makes depreciation calculation much less complicated.
8. Carrying forward losses
We certainly do not want you making losses. It is only realistic however to expect that once in a while it might happen. The good news is that you can use the business loss to your advantage. The losses can be carried forward for 10 years and set off against your future profits. This consequently reduces the profit tax impact on the company.
For more such strategies, all your book keeping and accounting needs connect with us at https://finsight.cw/
‘We run your numbers so you can run your business’
Harish Rao is a Curacao based Entrepreneur, Investor and coach. He is the CEO of Abaque group. Finsight global, Seguros Muskus (representative of New India Assurance in Curacao, Bonaire and the Windward islands), Partem education are some of the key ventures of the Abaque group.