What if we tell you can pay a lower tax or NO TAX (as in ZERO) at all, would you believe us?
No this is no scam and it is perfectly legal it is through a scheme called TAX AVOIDANCE.
What is tax avoidance and Why is it legal?
Tax avoidance is the use by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability.
CIR vs. Estate of Benigno Toda, G.R. 147188, Sept. 14, 2004
So basically in tax avoidance you are just using the law or the Tax Code (to be exact) to your advantage making it perfectly legal. In short it is just like a HACK a TAX HACK if you may.
Seems odd right? But it is true, you just need to know how tax works but of course it seems easier said than done.
How is it different from Tax Evasion?
Tax evasion is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.
CIR vs. Estate of Benigno Toda, G.R. 147188, Sept. 14, 2004
Many businesses resort to the following illegal ways of reducing taxes:
- Under declaration of sales
- Not issuing the receipts.
- Over declaration of expenses.
- Non -filing of tax returns
- And many more
All of which you can be criminally liable of the tax code under Sec. 254 of the Tax Code which states:
Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Five hundred thousand pesos (P500,000) but not more than Ten million pesos (P10,000,000) and suffer imprisonment of not less than six (6) years but not more than Ten (10) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
Section 254 of National Internal Revenue Code (as amended)
So how do you avoid or minimize paying taxes legally?
We listed down below a few ways to help you lower down your tax payments :
1. Business or Legal Structure of your Business
Choosing whether to register as Sole Prop or establish a corporation (One Person/ Less than 5 incorporators or Regular 5 incorporators) will have a large impact on your tax savings.
Here is a quick snapshot on how individuals and corporations are taxed on their INCOME (INCOME TAX) differently:
| Individual (DTI Registered) | Corporations (SEC Registered) |
| Net Income BELOW Php 250,000 is EXEMPT | Net income is taxed regardless of amount |
| Tax rate for net income ABOVE Php 250,000 is taxed at 20% -35% | Corporate income tax rate is a flat tax rate which could be either at 25% or 20% |
| Individuals availing of the 40% Optional Standard Deduction are not allowed to deduct Cost of Sales or Cost of Services | Corporations availing of the 40% Optional Standard Deduction are allowed to deduct Cost of Sales or Cost of Services |
To know more about business structure you may watch this video:
2. Maximize your ALLOWABLE DEDUCTIONS (expense accounts)
As much as possible you must maximize your expense in order to lower your net income and thereby lowering your income tax payments.
You may either choose between Itemized Deductions or Optional Standard Deduction.
If you want which will be better for you can watch this video on the advantages and disadvantages of the two.
3. Tax Incentive Devices
The government has provided entrepreneurs both sole proprietors or corporation equal opportunities to claim tax saving devices which will let you avoid paying taxes just like your Barangay Microbusiness Entity (BMBE) incentive.
It is a tax incentive given to all qualified entities which will let registered entities be exempt from paying INCOME TAXES for TWO YEARS and can be renewed for another TWO YEARS.
Learn more about BMBEs like the qualification and how to avail it by reading it here: BMBE Demystified
By being a BMBE registered entity you will not be hesitant in declaring your true sales since you will not worry about paying a large INCOME TAX (note: you will still need to pay percentage tax or value added tax , whichever will apply to you).
A true and high declaration of sales will help you when taking out a loan either for personal (like car and housing loans) or business (business loans) use.
Final Words
A penny saved is a penny earned
Benjamin Franklin
Consequently, whatever we save from paying taxes is penny earned that can be used to recapitalize and grow our business or invest in a new one so you can build your own empire (eventually 🙂 )
One final thing, you can only take advantage of the above ways ONLY IF you do what we call TAX PLANNING. That is planning your steps knowing that whatever decision you make has a tax implication. So what we are saying do TAX PLANNING or if you don’t know how consult a tax accountant or tax lawyer to help you.
Want to know more ways on how to save on taxes and stay rich using TAX and ACCOUNTING? Come join our seminar entitiled:
” GROW RICH, STAY RICH using TAX and ACCOUNTING”
When: June 19, 2021 (Saturday) 2PM-4PM
Register Here: https://forms.gle/EGGSzoykZ33nwpm99
Early Bird Rate Php 1,000 -until June 5,2021
Regular Rate – Php 3,000
Entrepreneur Help Group Member – Pay only 1,000 (even after June 5,2021)
Not yet a Entrepreneur Help Group Member , JOIN HERE:
https://www.facebook.com/groups/1093713714415595
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