Almost every millennial these days wants to come up with their own business, one where they can be their boss and can earn maximum revenue. Therefore, when two or more people get together with this idea and work towards making their dream come true, a startup is born.
Self-employed professionals, at the initial stages, take care of setting up and running their business effectively. While doing so, they often forget one very important component which can act as an obstacle in procuring the revenue threshold that they have planned for the business to generate. A lot of business owners, be it of a startup or a well-established private limited company, fail to pay attention to investment and tax planning.
Our objective of this blog is to make such self-employed professionals more responsible for investing their money and saving taxes. Here are 10 clever tax saving tips for startups and business owners that will be helpful for them in reducing their tax liabilities.
You may categorise these expenses as preliminary expenses. These expenses are the ones that you make before the commencement of your business or a new unit. You can deduct these expenses under Section 35D of Income Tax Act, 1961 from the taxable income. The law, however, states that this expense should be deducted equally over the period of 5 years and not all at once as a lump sum amount.
Many startups often start out with a home office or by adopting a work from home policy or by taking an office premise on rent. Here, they can take the rent that they pay for their residence into consideration and treat it as a business expense under the Indian Income Tax Regulations. Moreover, if you own the office premises and pay property tax for the same, you can get the deduction of that amount from your earnings.
This is one of the common ways to reduce your tax outgo. If your family member is not earning any income, you, as a company, can pay them an amount say as salary Rs 2 lakh per year, where there will not be any tax outgo for that relative. Since this is an expense to the company, you can set this off from the taxable income of your business, thus, reducing the total tax liability of the company.
You may be required to a lot of places, as a face of the company, for meetings or networking at events with other business owners as well as potential investors. For some events, you might be required to stay in a city for a few days for which you will have to check into a hotel for accommodation. You, as an entrepreneur, can write off these expenses. Remember always to keep the dining and taxi receipts and the travelling rate in case you are travelling abroad. These expenses can save your business a good amount of money which you can channel back into the business if required.
You, as an entrepreneur, can claim any amount of medical insurance premium up to 15,000 for tax deductions under Section 80D. This insurance can be for self, spouse, dependent children or dependent parents. However, you should keep in mind that you can only claim a deduction for this expense if the startup is your first job and you do not hold a full-time job where your employer gives you medical insurance.
Depreciation is one of the best method for you to save tax. All capital expenses, done for business purposes, should be made in the name of the company. For example, a car, computer, furniture, mobile phones, etc. can be brought under the company’s name. You, as a company, can claim depreciation for these expenses, at a different rate prescribed under the Income Tax Act, 1961 which depends on the assets that you have purchased.
[ Read: List of Business Expenses ]
Utilities such as electricity, water, internet and telecom often contribute majorly to your expenses. You can consider these as business expenses and write them off accordingly. Moreover, certain equipment, if purchased can also be liable to be written off under the depreciation banner.
You might feel like cutting down on charities that you donate to when you start your own business. It is advisable that you carry on doing this because you can get a tax break in this as well. However, make sure that you give your donations to organisations that qualify for such deductions that fall under Section 80G of the I-T Act. Also, make sure that you procure a duly stamped receipt of the donation done to charity.
If you have taken an educational loan and are in the process of paying it, you may want to reconsider that amount as an expense. This also applies to the educational loan you have taken for your children. Also, you are allowed a deduction of up to two children for their full-time education under Section 80C.
The I-T Department recommends people to file tax returns on time if they want to avail benefits. One of the prominent benefits is to carry forward of losses on your income earned from business. You can carry forward business income losses for a consecutive period of 8 years, and so it can be set off against the income earned in the coming years if it cannot be adjusted in the current year. This benefit is available only when you file your tax returns on or before the tax filing due date.
It is very important to keep a tab on any changes made by the government with regards to tax write-offs to save money, both in short-term as well as long-term. H&R Block helps you file your taxes effectively and save the maximum amount of money as tax deductions and exemptions, which can be used back to enable the growth of your business.