Legal Ways To Reduce Tax in Business
As a business person, entrepreneur, income earner or investor you are surely going to be taxed, from federal taxes, state taxes, social security tax and other taxes. If you are earning any amount of money as income, be sure you are going to be paying over 46% of your annual income as tax and if you evade tax, you are sure to pay up to 25% additional of your income to the 46%. This can be very annoying, making it look like you are just working for the government but how do you legally reduce or not pay federal government taxes?
In this post, I will be showing you how you can find your way around taxes without getting taxed with percentages that could send a company packing.
Turn your successful business into a corporation
In most countries, the tax giving to a sole proprietor and that of a corporation is different. As a sole proprietor, the business and personal finances are often mixed and that often causes the sole proprietor to be taxed based on earned income even though they are from the business and this incomes can go up to 37% yearly (may defer based on region). Creating a corporation means you and your corporation are two different entities and corporate taxes in the US is about 21% of the yearly. Creating a corporation can save up to 16% on business income tax (this amount differs based on countries and regions). With corporation, it means the corporation owns the money and you own the corporation. With owning a corporation, any expenses made related to the business can be regarded as a corporate loss or corporate expense.
Creating Tax haven/foreign companies
As a business owner running a corporation, creating companies with the same trademark in countries with little or no corporate tax. Countries like the Bahamas and Jersey just to mention a few. Companies can legally move money to these countries so as not to get taxed thereby reducing the income of the company. With this, the company will be able to save taxes as they send money to these foreign corporate accounts which the company offshore with ownership to patent, trademark and intellectual property.
Paying Executive in stock options.
Paying executives in stocks is a very good way to eliminate or reduce tax. The corporation pays the executive in stocks which will not be taxed unless it is sold. It company create new shares to pay its executive which will only be taxed when the executive decides to sell his shares.
Using Shares as Collateral
Company executives can use shares as collateral to borrow money from an investment bank which allows the company executives to bypass taxes.
In Conclusion
Companies and executives have been always found loopholes in tax code and this helps them to keep a large amount of their incomes instead of paying it as tax. One way for companies to legally pay less or no tax is by creating shell companies outside the country.
