7 Legal Ways to Minimize Tax Liabilities

Whether you're an entrepreneur, a freelancer or a self-employed law-abiding citizen, I'm sure you'll find great interest while reading this guest post — 7 ways that can actually lower down your tax liabilities without the fear of having Kim Henares hunting you! Good thing you landed on this page, as you're about to learn simple and practical things you can do for you and your business!

Ready to find out? Let's go!

Every working citizen is required to pay taxes, considering that it is your obligation and duty. However, you also have the right to discover how to avoid paying more than you should, as long as you do so within the bounds of the law.  Tax avoidance is not tax evasion because the former is an acceptable means of minimizing the amount you have to shell out to the BIR. But don't expect the government to tell you exactly how to do it, even if you're a freelancer or a self-employed individual.

Unlike employees who typically have someone from the HR department to handle HR services issues like tax deductions and the like on their behalf, as a freelancer, you need to learn these things on your own.  There are various ways to reduce your taxes legally depending on certain circumstances. 

Here are seven of the most common ways you can go about it:

1. Minimum exemptions and personal deductible income  

Let's start with the basics. The law allows a P50,000 mandatory deduction for every taxpayer regardless of status.

So whether you're a single individual, head of a family, an employee earning compensation income, married individual or professional—you're entitled to this.   There's an additional exemption for those with dependents, which is P25,000 for each child/dependent up to a maximum of four. Dependents include senior citizens. All in all, individuals can have a maximum exemption of up to P150,000.  

2. Make improvements on your working place

Money outlay used to make improvements to your working place can increase the following expenses, among others: deprecation, supplies, repairs, and maintenance.

If you keep your invoices or official receipts, you can book and claim these as allowable deductions from your taxable income, thus lowering your income tax. Some of these include building improvements, buying, repairing, or maintaining other assets such as equipment, vehicles, and office supplies.  

3. Give clients sales discounts  

Discounts will, of course, result in lower net sales, which will in turn lead to less taxable income and less income tax. But it doesn't always result in lower overall profits, as sales discounts are more likely to attract more customers to buy your products.

Discounts could lead to higher sales and not to mention more customers who now know more about you and your product offering.    

4. Put greater capital funds into your business  

If you obtain a loan to infuse more capital into your business, you get debt capital. The loan will allow you to get interest expense that can be claimed as a deduction from your taxable income.  

5. Use representation expenses  

Client meetings held at a restaurant is one of the many ways you can claim representation expenses, which are allowed deceptions to your income tax. Any cost you incurred while entertaining customers that are connected to your business can be filed as representation, recreation, or entertainment expense—within a prescribed ceiling.   

6. Purchase insurance for your business  

Insurance is the premium you paid to insure your business is an allowable deduction against your gross taxable income. Whether you purchase a life insurance, a policy or a non-life plan (such as property insurance, or auto insurance), you can book these as deductibles.   

7. Make a donation   

Donations to charitable institutions and other organizations can be deductible as well. Those funneled to government projects and other accredited non-government organizations are fully deductible from your gross taxable income, while those that individuals made to other non-accredited institutions are partially deductible to any amount that’s not exceeding 10% of your taxable income. 
 

By legally avoiding taxes, you can end up having more funds than you had expected. It might require you to figure out some complicated tax rules or have you decipher a few abstract concepts, but it's well worth the time and energy if it means more money in your pocket. 


This is a guest post.
 

Danella Yaptinchay is the managing director of Full Suite,  service company providing back end support to small businesses. She is a cofounder of Co.lab, a coworking space, and of the media company Homegrown. In constant pursuit of balance and self-employment, she tries to apply the practices of yoga to her daily life.

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