When starting a business, don't be intimidated by the taxes you need to pay. Pay your taxes wisely. Here are the Legitimate ways you can include in your tax exemptions.
Are you tired of being employed, following every order from your boss? Have you experienced being out-of-tune, probably feeling sleepy half-way your shift? Do you envy your boss’ new sports car? Start thinking! You might have ventured in a wrong career path. Maybe you’re not even fit to become just an employee. You are intended to become the boss, the boss of your own business.
Venturing into a business is not a joke. One must conduct a thorough feasibility study to make sure that losses will be avoided. When doing feasibility study an entrepreneur project the maximum potential expenses to be incurred by the business, and conservatively project its income. As much as possible the margin of error must not be more than 5%; otherwise, your business will most likely fail.
One of the anticipated expenses is of course income tax. Many entrepreneurs consider the yearly income tax filing as the antagonist of their business, trying to steal the money that should have been their profit. For a business to grow and not be tricked by the taxes charged, it is important to know what your tax breaks are.
What is a tax break?
In the Philippines, a tax break is considered to be the valid tax exemptions that you can declare when filing your yearly income tax return. There are different tax breaks. Some only applies to specific group of individuals, while other tax breaks do apply to all taxpayers.
Here are some tax exemptions that you and your business can maximize.
1. Exemptions from Income
Yes, you can avail tax breaks from your individual income as well as from your business income.
A. For Individuals
Remember, when you deposit your money in an ordinary savings account, the bank will charge your 20% withholding tax. Meanwhile, if you deposit your money under a long term scheme, your savings will be exempted from tax. Try to coordinate with your bank and see what long term savings plan fits you.
B. Profits from Business
The profit your business gain from paying a debt through bonds, with more than five years on maturity, are tax exempted.
C. Mutual Fund Earnings
If your business has invested on mutual funds, the profit gained from there will be tax exempted.
2. Exemptions from Expenses
Here are three ways you can maximize tax breaks from your expenses.
A. Sole Proprietors
If you open a business as a sole proprietor, you will be paying a much lesser tax compared to a business established by a corporation. Aside from this fact, being a sole proprietor, one is eligible for the following tax exemptions depending on the category that fits the sole proprietor.
1. Single- Php 20,000 will be deducted from your gross income for the specific year.
2. Head of the Family- Php 25,000 will be deducted from your gross income.
3. Married- Php 32,000 will be deducted from your gross income for the year.
Note: For every qualified dependent (child under 18 years old), you are entitled to Php 8,000 exemption. A head of the family can only include 4 dependents at the most, with a total tax exemption of Php 32,000
B. Retirement Benefits
An employer’s contribution to his employee’s retirement benefit is not considered as part of his gross income. Thus, this should be included as part of the expenses. In the same manner, if the entrepreneur is receiving his own regular retirement benefits, this should not also be included in his declared income, rather it should be under the expenses section.
C. Net Losses
Net losses for the year can also be declared up until the 3rd year of income tax filing. This can be deducted from your business’ future gross income.