Almost every tax authority around the world extended the tax filing date due to the high spread of COVID-19. But, it works as great news for taxpayers. With the icing on the cake, you will have more time to look for tax deductions strategies and reduce taxable income. For instance, if you are eligible to pay tax in Romania, the date from 15 March for the annual tax return extended to 25 May for 2021. This means you will get almost two months for filing your tax return. The same lies in many other countries.
So, wherever you are eligible to pay tax in Romania or somewhere else, here we have a list of common tax deductions plans for your support.
- Prepay Your Expenses
Prepaying expenses is one of the easiest ways to avail of tax deductions. Because it reflects the debit side balance of your financial accounts that helps in reducing credit balance. So, never leave this opportunity. You can pay for utility bills, buy software for business use, or pay an advance monthly salary.
Paying for these expenses can help you to get a certain amount of deduction under the head “prepaid expenses”. Keep in mind, while paying prepaid expenses do not pay more than 12 months’ expenses. Because you will qualify for one-year deductions only.
- Stop Billing Customers At The Last Minutes
Making payments at the last minute is great, but not accepting money. Because receiving money at the last minute helps to bounce your income statements. Which could ultimately affect your total taxable income. Therefore, most companies around the world stop billing customers at the last minute. For example, John creates a bill for every client before doing work. But, just before the last date of tax filing, he stopped billing and sent them in the first week of next month. This ultimately reflects his bank statements and carries forward a certain portion of income in the next year.
- Purchase Business Asset
Buying machines comes with a bonus of depreciation. Therefore, if you are looking for a long time to buy something for business use such as a laptop, mobile, or something with 100% depreciation, this is a perfect moment to purchase. The best part, you can buy an expensive item for business use and avail yourself a good portion of the deduction.
Remember, some business assets have 5 to 30% depreciation also, which means you can avail only 5-30% of deduction income each year. So, check it before buying anything. You can also consult with your taxation services provider to know more about asset purchasing.
- Use A Credit Card To Pay Certain Expenses
Whether you are a single member of a limited liability company (LLC) or running a sole proprietorship, having a business or personal credit card can help you in the deduction. You can go for last-minute shopping to buy office supplies or necessities and pay with a credit card. The limit used for shopping with a credit card can help you to avail deduction. Not only these two, even if you are running a large corporation and have a credit card with a company name, still it can help you to avail the heavy deduction. All you need to do is submit your billing report before filing an income tax return.
- Do Not Avail Too Many Deductions
Looking for ways to smart strategy, but availing too many deductions could be more problematic for your business. Availing more itemized deductions can reduce your net operating income, which is not good for successful businesses to show in their financial reports. There is another solution for new business concerns, you can avail of certain deductions in the coming years. This is a fruitful strategy that won’t let your income down and you can pre-plan for next year’s adjustments. The best part is you get enough time to focus on other important aspects of the business.
- Say Thank COVID-19
You can be a little grateful to COVID-19 when you are planning for tax deductions. Because, due to covid-19, most business concerns get huge tax deductions for the loss of income. If you are too one of them whose business bears a great loss, can easily avail deduction for the income. Moreover, to support countries and economies, various fund relief schemes were introduced to support healthcare, education, social services, human rights, etc. Most of these offer a 100% deduction for voluntary contributions. The best part, you can participate in the fight against novel coronavirus.
- Contribute in Retirement Plan or Health Savings Account
If you are a W2 employee, contribution to retirement funds can help you to secure a future and taxable amount. Because your contributions can reduce your total contribution multiply by the marginal tax rate. For example, if your taxable income is $1000 and you fall under the bracket of 22% tax slab. This means you can avail $220 deduction in the way of retirement funds contribution.
Similarly, if you are saving anything for health saving plans, you can also avail of the deduction for the same. Employers also have the option to contribute a small portion of income for employee benefits and avail tax benefits. Keep in mind, the limitation for maximum deduction varies from country to country. Therefore always check your territorial tax body’s regulation before planning for the deduction amount.
- Hire a Professional Tax Service Provider
While planning for your tax adjustments, nothing can help you other than tax service professionals. For instance, when you are planning to pay and adjust tax in Romania, hiring tax services for Romania is the perfect option. The experts for taxation know all the regulations and laws that help to reduce your taxation burden. Moreover, once you are able to fill your obligation toward Romanian authorities you will be able to get tax payment certificates that attest to your residency.
Tax experts also advise businesses to set a fiscal system for certain types of income. Companies also get advice if they want to apply specific remuneration items for the benefit of the company and employees.
Let’s Sum Up!!
Hopping the above tips helps you to reduce the tax burden and avail deductions. Again, try to prepay expenses and stop billing at the last moment. If you are using a credit card, add a statement while filing the return, and do not go only in a race of availing deduction in current years. Plan your financial statements with a smart strategy. When possible, contribute to COVID-19 relief funds, retirement plans, and above all do not forget to hire a professional.