For many business owners, one aspect of keeping a company afloat is minimizing expenses. This goes not only for operating expenses but also for tax expenses. If you are a start-up company or even one that is a few years fresh, you would understand that the amount of money your business spends on tax is not negligible. For many businesses, a 32% income tax is a BIG deal. For some micro-enterprises, even a percentage as small as 5% is still a lot to swallow.
So, how do you lessen your tax dues? In the Philippines, you can lessen your income tax owed through tax avoidance, which is LEGAL. Unlike tax evasion, which involves the manipulation of funds and accounts, tax avoidance uses legal methods to decrease the amount of tax an individual or business has to pay. One such method is the declaration of ALL tax-deductible expenses, also known as deductibles, no matter how small.
Your business may already be spending on things that you didn’t even know were tax-deductible. A simple bill of 2000 pesos for a small company dinner, when declared, can already lessen your income tax by a couple of pesos. Remember, small amounts when compounded amount to something big. Besides, 1 peso saved is always 1 peso earned for your business. If you wish to further minimize the amount you pay on tax, here are all tax-deductible expenses that you can declare. It would help to have a CPA doing your final audit to maximize these deductions.
Amortization lowers the book value of any intangible asset (trademarks, patents), or loan, over a period of time. Deducting amortization expenses reduces your tax liability. You can continue deducting a portion of the cost of an intangible asset every year that it is in the service of your business until it has no more value.
Depreciation is a non-cash expense that is a percent or portion of any fixed asset (Property, Plant, and Equipment) that has been utilized over a certain period, thus decreasing the current netbook value of such asset. It is different from amortization in that it only pertains to fixed assets. By factoring in depreciation, you lower your taxable earnings and shrink your dues.
Utilities include lighting and electricity, water, and communications expenses. Do not forget to include company phone bills and wifi plans under this account. Even a portion of your home office’s utility bills can be deducted with proper documentation.
4. Fringe Benefits
Fringe benefits include any perk or bonus that employees are given in addition to their base salary. This includes holiday bonuses (different from holiday pay), in-kind gifts, gift certificates, subscriptions, health insurance, tuition, and retirement, among many others.
5. Office Supplies
Office supplies include everyday tools and equipment, like paper, pens, ink, etc. Leverage every company expense that you make, and don’t leave any stone unturned.
6. Bad debts
Bad debts are receivables that customers have not paid and cannot pay. An example is receivables that a customer can no longer pay because of bankruptcy. If you don’t expect to recover this amount, you can write it off.
7. Donations and Charity Work
Donations made in the name of a company or your person may be tax-deductible so long as they are made to any BIR accredited institution.
8. Promotional Expenses
Thankfully, the Philippine government allows you to deduce advertising, marketing, and promotional expenses used for generating new prospects or keeping customers. These expenses qualify as a reasonable and necessary tax deduction. This includes tarp printing, social media management, content creation, ad fees.
9. Cleaning and Management Services
Each time you avail of management services as well as cleaning services, do keep the receipts as these expenses are considered deductibles. You can even deduct routine cleaning services used to organize your home office. A percentage of the total cleaning costs for the home office is allowed but not the expenses for the whole home, which is already considered personal.
10. Consultancy Fees
If you hire professionals to work related to your business, you can deduct the fees you paid. Consultancy fees include consulting with business consultants, accountants, bookkeepers, etc. For these reasons, it is always crucial to ask for an official receipt so you can file it properly.
The aforementioned list of deductibles, when declared, can greatly help lower your income tax, that is, if these expenses are properly documented. To ensure you can use them to lower your dues, it is always important to remember that proper tax preparation begins with proper initial documentation of transactions.
Keep all receipts and record these expenses in your journal. Feel free to seek aid from bookkeepers and accountants for better recordkeeping, data analysis, and tax prep. If you need help, give our team a call. We can help your business maximize deductions so you can legally reduce your tax dues with the BIR. Our CPAs offer free 30-minute consultations.