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Tax is a necessary part of doing business, but it is also a drag on your activities. The more tax you pay, the less money you have leftover in the pot for wages, investment, and other things that are crucial to your long-term success.
Many firms and individuals, therefore, focus on paying a fair amount of tax – the sum set out in the tax code. They want to make sure that they’re not putting their business at a disadvantage by allowing extra funds to drain out.
The problem is that relatively few people ever fully evaluate their tax position or take steps to minimize it, beyond the basics. The authorities set out how much of your enterprise they want to take. There’s no reason to pay them a penny more, outside of the rules. When you do, it puts you at a disadvantage against your competitors, and all your stakeholders lose out.
Sadly, though, there are a lot of people in the business world who regularly overpay. Fundamentally, it has to do with not fully understanding the rules. It might seem like you have to do things a certain way, but often you can enjoy massive savings with relatively little effort.
The government has a basic set of tax rules. But on top of that, it also offers so-called “tax schemes.” These are mostly perks that you can enjoy if you engage in specific types of activity.
Take R&D tax credits, for instance. These allow you to claim back expenses against your profits and avoid paying any tax on the money you spend on these activities. So if you’re developing a new product or engaged in any valuable research, you may be able to offset this against your profits, lowering your corporation tax bill.
In accounting, you’re allowed to deduct depreciation of your assets as a cost from your profits, even if you don’t have to finance it immediately from your cash reserves.
So, for instance, if you buy a new building and then begin operating in it, you immediately incur wear and tear – something that implies higher expenses in the future.
Cost segregation services by tax professionals is a way to account for this effect fully. Here, accountants review your asset position and then work out how much depreciation is taking place – all backed up by evidence. They then use this to deduct from your profits, meaning that you ultimately pay less corporation tax upfront.
Countries want businesses to be able to set up operations without having to pay tax twice. Most, therefore, have double-taxation agreements where companies only have to pay once – usually to the domestic authority.
Firms, however, don’t always take advantage of these rules, especially if they’re new to the game. And that can cost them dearly.
Take advantage of international tax rules where you can. Use experts to figure out how to adjust your operations so that you pay the majority of taxes in lower-tax countries.
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