| Taxation |
| |
| All citizens want to pay the lowest amount of tax possible. For
most individuals who work as employees there is very little opportunity to do
anything with their tax level. Income tax is deducted at source, sales taxes
are deducted on goods and services being acquired and all the other fee-based
taxes are levied based upon the action that we take. Some owner managers feel
that because there is more latitude when you are running your own business that
it is acceptable to deduct in the business expenses that are not appropriate or
worse not report all income. |
| |
| Most democratic countries have a system of taxation, which is based
upon self-assessment. The government does not know how much money it is owed by
you until you report it on your tax return at a fixed time each year. The
self-assessment system requires that taxation be clear and easy to determine
for all citizens and that the citizens feel that the system is fair. If a
taxpayer takes advantage of the system and does not report all the income that
they should then others bear the burden of making up the difference. To
maximize the correct reporting of tax and minimize any attempts to not report
the correct amount each tax department levies significant fines and penalties
for any taxpayer found not correctly completing their tax filings. If they
believe that the errors were deliberate then there are provisions to send the
taxpayer to jail. |
| |
| In addition to money penalties and potential jail time the tax
payer who decides to not report income or fudge expenses incurs a lot of
emotional energy dealing with the potential of being audited by the local tax
authority. Tax cases that go to court are reported in the local media, which
can lead, to embarrassment and potential loss of customers who prefer to deal
with someone who is more honorable. The obvious message is do not cheat on your
tax reporting - the cost can be onerous. |
| |
| REDUCING TAXATION |
| |
| There are many legitimate ways to reduce taxation with a little
planning and effort. |
| |
| The first step is to hire a great accountant who is familiar with
your industry and can recommend ways to reduce your tax hit. |
| |
| For many businesses, one way to reduce tax depends on the
jurisdiction that is taxing you. Today many companies conduct business in more
than one jurisdiction. Each jurisdiction has its own set of tax rules and
regulations - some are much less expensive than other. By organizing your
operations to conduct an active business in the less expensive location your
firm can save enormous amounts of taxation. For example, one firm had its' head
office in a high tax jurisdiction. However, it was able to organize its'
business affairs in such a way that it separated its' service operations into
separate legal entities which had their principal offices and operations in low
tax jurisdictions - the result was a significantly lower overall tax rate.
|
| |
| The most common way to reduce the overall tax burden for
entrepreneurs is their ability to decide how much income they take in their
hands as personal taxable income. Most high net worth owner managers minimize
the amount of income they take personally and maximize their own net worth.
Most tax jurisdictions tax personal income at a progressive rate; the less
income you have the lower your average tax rate. |
| |
| All of this requires ongoing and effective tax planning. Your
accountant should be reviewing your goals and your needs on an ongoing basis.
It is important to meet with your accountant at least once a quarter to update
him/her on your current situation. |
| |
| Wealthy entrepreneurs understand the necessity to minimize overall
tax burden while maximizing their wealth. |
| |
| |
