When you work for yourself there’s flexibility with how much tax you pay, and most importantly, when it must be paid.
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> That means you can earn half the salary from a job and still take home more money. Genius.
Either this guy doesn't understand how income tax works, or I don't. (Or he's just lowkey recommending tax fraud)
Aren't there conditions? for example, in Mexico a company car must bear a logo of your company, and be used for company business at least half the time IIRC, otherwise it counts as a personal car. Business travel and clothes are also limited to sensible business needs, you can't your sky resort vacation as a business expense... well, you can, but if you're audited it will be very unpleasant.
I'm missing the part that says that the employee is allowed to use such phone primary for private means.
Of course a company (or legal entity for that matter) can get some tax benefits. That's not the point.
The fraud is when you declare to buy / use something for the company but use it privately. You just lying about the expenses.
Like I said, I know that "everybody" with a company does that. But in their position I would not tell anybody openly as this is quite clearly tax fraud.
In Germany this is even more complex as you can use some things in parts privately. But than things depend on how the "exact percentage" of private use is…
Of course nobody can really effectively control such things. The laws are actually made to help "some special people" to avoid paying taxes.
But things are very complex, and it's very easy to commit tax fraud by trying something like that without professional legal backing.
For that reason there is a whole "industry" helping people to avoid taxes!
But by just buying stuff "for your company" and using this stuff privately you will get in trouble pretty soon. I don't think this is different in any country.
Either this guy doesn't understand how income tax works, or I don't. (Or he's just lowkey recommending tax fraud)
What you're missing is tax deductions.
when you operate as salary, you get no deductions and pay maximum taxes.
When you operate as sole proprietorship you can deduct 'business expenses'
Business travel and parking? Deducted.
Any new gadget or widget? Deducted.
It doesn't create new money, you have to still earn the money in the first place, you can't go buy a porsche but you'll be surprised at how many things you can get away with at least partially deducting and when you do this to a full extent. You end up paying little to no income tax. You take home more while earning less.
And then what happens when you want to pay yourself a salary? Aren't you essentially paying corporate tax rate and income tax on that amount? Maybe that doesn't apply for a sole proprietorship, but does it for a small business?
In the US, at least, the IRS frowns a bit at people over-using business deductions. "Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
In the US, at least, the IRS frowns a bit at people over-using business deductions.
Fair, tax laws are different everywhere. Your mileage may vary.
"Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
The magic is in how you justify the expense as part of the business. Nothing stopping you from putting crappy reviews online for everything you buy and then deducting your life expenses.
Sure hope you're getting advice from a tax professional because just deducting every gadget you buy from Amazon is not how it works. You have to prove to the IRS (if audited) that the thing is 100% for business use. The rules for stuff like home office are byzantine and complex, getting down to the level of how big the space is and how much time you spend inside it a day.
Yeah, I was under the impression you pay more taxes working for yourself, because you have to pay all the payroll taxes normally paid for by the employer. And then there is the corporate income tax you have to pay before you can pay yourself a salary. Maybe you can get more creative with deductions, but the base rate will be higher.
Comments
Either this guy doesn't understand how income tax works, or I don't. (Or he's just lowkey recommending tax fraud)
If you run your own company you have many opportunities to turn your normal purchases into business expenses.
At least in the UK:
* Dividends pay less tax than income.
* Any work related equipment is a deductible expense. Includes computer, mobile phone, etc.
* A company car, particularly an electric one, is much cheaper than buying a car as a private individual.
Those are just the basics.
Aren't there conditions? for example, in Mexico a company car must bear a logo of your company, and be used for company business at least half the time IIRC, otherwise it counts as a personal car. Business travel and clothes are also limited to sensible business needs, you can't your sky resort vacation as a business expense... well, you can, but if you're audited it will be very unpleasant.
And all of those "tips", besides the dividends thing, are actually tax fraud.
I know "everybody and her mom" is doing it, but it's still fraud. If you get caught it could have quite bad consequences.
Nope. E.g. here is HMRC's page on providing a mobile as a benefit:
https://www.gov.uk/expenses-and-benefits-mobile-phones/whats...
Nothing to report if the company provides one phone and the contract is in the company's name.
I'm missing the part that says that the employee is allowed to use such phone primary for private means.
Of course a company (or legal entity for that matter) can get some tax benefits. That's not the point.
The fraud is when you declare to buy / use something for the company but use it privately. You just lying about the expenses.
Like I said, I know that "everybody" with a company does that. But in their position I would not tell anybody openly as this is quite clearly tax fraud.
In Germany this is even more complex as you can use some things in parts privately. But than things depend on how the "exact percentage" of private use is…
Of course nobody can really effectively control such things. The laws are actually made to help "some special people" to avoid paying taxes.
But things are very complex, and it's very easy to commit tax fraud by trying something like that without professional legal backing.
For that reason there is a whole "industry" helping people to avoid taxes!
But by just buying stuff "for your company" and using this stuff privately you will get in trouble pretty soon. I don't think this is different in any country.
What you're missing is tax deductions.
when you operate as salary, you get no deductions and pay maximum taxes.
When you operate as sole proprietorship you can deduct 'business expenses'
Business travel and parking? Deducted.
Any new gadget or widget? Deducted.
It doesn't create new money, you have to still earn the money in the first place, you can't go buy a porsche but you'll be surprised at how many things you can get away with at least partially deducting and when you do this to a full extent. You end up paying little to no income tax. You take home more while earning less.
And then what happens when you want to pay yourself a salary? Aren't you essentially paying corporate tax rate and income tax on that amount? Maybe that doesn't apply for a sole proprietorship, but does it for a small business?
Payroll is a deduction as well.
You only pay taxes on profit. If you paid taxes on gross revenues it'd make running any business basically impossible.
In the US, at least, the IRS frowns a bit at people over-using business deductions. "Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
Fair, tax laws are different everywhere. Your mileage may vary.
The magic is in how you justify the expense as part of the business. Nothing stopping you from putting crappy reviews online for everything you buy and then deducting your life expenses.
Sure hope you're getting advice from a tax professional because just deducting every gadget you buy from Amazon is not how it works. You have to prove to the IRS (if audited) that the thing is 100% for business use. The rules for stuff like home office are byzantine and complex, getting down to the level of how big the space is and how much time you spend inside it a day.
Yeah, I was under the impression you pay more taxes working for yourself, because you have to pay all the payroll taxes normally paid for by the employer. And then there is the corporate income tax you have to pay before you can pay yourself a salary. Maybe you can get more creative with deductions, but the base rate will be higher.