Monday, February 29, 2016

How to reduce your taxes

1. Own your business.

It’s more efficient for your taxes if own your business than if you work for an employer. If you have a business, you pay income tax on your profits or after you deduct your costs from your revenues. If you are an employee, your employer witholds your income tax based from your salary or wage after deducting a fixed amount of costs and benefits. Overall, it’s more tax-efficient to be an employer than to be an employee, but being an employer involves more risk.

2. Invest in tax-efficient sources.

If you have enough compensation income to support yourself and your family, you may want to invest in income streams with smaller tax rates. Interest income in banks are taxed only at 20% income tax. Capital gains tax of real property that are capital assets, or assets that are not ordinarily used in business, is 6%.

Buying shares of stock in listed corporations has an income tax of 1/2 of 1% of the net profits. For shares that are not listed in the stock exchange, the income tax is 5% for transactions of up to P100,000 and 10% for any amount in excess of P100,000.

3. Give to or build an accredited charitable organization.

If you earn much, the government will still tax you a lot even if you own your own business or invest in tax-efficient sources. One way to reduce your taxes and increase your tax credit is to give to an accredited non-government organization. If your business can support a foundation, you can consider building one, especially for education and health care. This way, you not only help people improve their lives but you also get a tax credit and reduce your taxes.

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