Do you have to file your own tax return? If you’re self-employed or running a business, the answer is yes. Each year, you need to tot up your expenses, work out how much money you made, then pay tax on it.
We know why this has to be done, but it can sometimes feel as though a huge chunk of your hard work is taken away come tax season. Let’s be honest, we all want to pay less tax – but this has to be done legally.
You’ve heard stories of celebrities dodging tax or paying far less than they should through sneaky and unethical means. Don’t worry, you won’t have to do this! There are plenty of ways to legally and ethically save money on your tax bill, ensuring you only pay what you need to pay.
Reduce your income by paying into a pension
Tax rates are determined by how much money you earn every fiscal year. If you move from the basic taxpayer rate to the higher rate, you can go from paying 20% to 40% in tax.
This can be really painful, but there’s a smart way to ensure you stay in the lower band. All you have to do is pay money into a pension because they provide tax relief. You can claim this when filing your tax return, basically getting money back because you invested in a pension.
It’s a funny little thing that the government introduced, but it’s proven to help you save money because your income is technically reduced as some of it goes into a pension. It’s advised to read up on this before you try it, so you know what you’re doing.
Claim tax credits
Tax credits can be claimed by individuals or businesses in many different ways. There are tax credit benefits for self-employed people to help reduce what you pay each year. Likewise, you have things like R&D tax credits for startups that act as an incentive to encourage small businesses to invest in research and development. If you do a bit of research, you’ll learn more about what tax credits you could possibly claim for, reducing what you pay in tax every year.
Claim your expenses
Similarly, you can reduce your tax bill by claiming some of your ongoing expenses. Whether you’re self-employed or running a business, there are certain expenses that can be deducted from your tax bill.
You’ll actually be surprised at how many different things you can claim – for instance, you can claim back the cost of petrol on your car if you use it to conduct your business. Office supplies can also be claimed back, as can some marketing and financial costs.
The more you look into it, the more money you can save by claiming back expenses. Your best bet is to work with a financial expert on this as they can help you claim as much as possible.
Just like that, you’ve saved a fortune on taxes without breaking the law or doing anything dodgy. Yes, we all need to and should pay our taxes. However, you shouldn’t have to pay more than you technically can. Use these tactics to lower your tax bill and avoid financial distress.