As is the case of individuals, businesses that are sole proprietorship are also eligible for tax exemption under some conditions. If you own more than one business as a sole proprietor, you can pay the taxes of all the firms together as a single assessee. There are some procedures to calculate the total income of the individual. Total income refers to the net profit made by all the businesses and sole proprietorship firms run by you. Net profit in this case will mean the gross receipts or the total turnover minus all the expenses incurred in running the business and related to business. In other words, computing of the total income of an entrepreneur is arrived at by adding up the net profits of all the proprietorship businesses of the individual. The method of administering the accounts can prove to be highly useful for tax calculation. You can choose to maintain your accounts either on cash basis or on accrual basis.
While looking forward to minimize the tax liabilities, first identify all the expenses related to your business. For instance, if you run a sole proprietorship business from your home, it makes sense to calculate the rent to be given to the owner of the property though you pay it for your living. Always make it a point to handle the personal and business related expenses separately from each other. Besides the direct expenses, there are some common expenses that every business will incur, which you must know for proper account management.
- Rent payable to the owner of the place where the business is run even if it is from your home. Know that proprietor cannot accept rent for the place that is owned by him
- Expenses towards running and maintaining the business, finance expenses and depreciation of the vehicles used for the business
- Expenditure towards maintaining the office furniture, computers and equipment, the interest cost and the depreciation
- Expenses towards telephone, internet, communication, power generator and telephone and the running and maintenance cost of all these items.
- Salaries and welfare expenses of the staff, travelling and conveyance expenses
- Stationery, books, newspapers, magazines and periodicals, computer and office consumables, cost of advertising, business promotion and website expenses
There are a few points you need to note with regard to maintaining the accounts with special reference to taxation. Support all your expenses with proper evidence; never make cash payments beyond a certain amount; and always deduct the TDS applicable and deposit the same.
Under different sections of the laws of taxation, tax deductions are applicable for investments in insurance, mutual funds, PPF, education, and housing loan up to one lakh. Also, check the deductions applicable for investment in infrastructure bonds, mediclaim policies, rent paid for residence and donations given to charity organizations.
You may also check the special provisions available for small businesses, provision that gives room for adjustment of losses, and the advantages given for setting up business in special economic zones. By working on several aspects in the lines specified above, you can hope to make considerable saving on the taxes payable. Once you probe your auditors, they can suggest you with more tax saving tips.