When running a business, several costs might cripple your business when mishandled. While you might have exceptional budgetary plans to handle your finances, these cannot be transferred to handling business cash. It would help if you had a professional accountant to manage your company's finances and ensure you remain afloat. One thing most people dread is taxation. They assume that this is the primary element that drains their funds and will still attract hefty fines when ignored. A professional offering tax consultant services in London might, however, recommend several ways of getting an income for your company without incurring high taxes. At times, these strategies also waive your fees. The following are a few ways of using a corporation to generate some income for you while minimizing your tax burden.
Get Repayment for Your Shareholder Loans
When running a corporation, you can give loans to your shareholders or the company. The repayments of these loans can generate some much-needed income for you without attracting tax penalties. You can also create a shareholder loan in your company by transferring some of your assets to the business for an estate freeze and other reasons without triggering a tax implication.
Pay Dividends to Your Holding Company
You can have a holding company owning the shares of your business. The corporation will pay dividends to this holding company at specified intervals. When the money is in the holding company, you are free to use it as you please. You can consider it as your income and re-invest it as you deem fit. Moreover, you can lend this money to your corporation. In so doing, you will protect the cash from creditors in case you cannot meet your financial obligations.
Pay Capital Dividends
Corporations have CDAs or capital dividend accounts. This account only exists on paper and comprises the tax-free capital gain your company realizes over time, capital dividends, and life insurance proceeds. With this account, you can have tax-free capital dividends paid to you regularly as income. This is prudent because your CDA balance might disappear if, for instance, your company runs into losses.
Withdraw Paid-Up Capital
Your shares have a paid-up capital amount. This is akin to your shares' base cost. You can withdraw your paid-up capital amount from a corporation without incurring any taxes. In most cases, this is the same amount you used to buy the shares. Redeeming your paid-up capital is one of the popular options for withdrawing it though there are several alternatives for the same.
Pay Yourself Rent
Some businesses operate from the owner's home. You can pay yourself rent from the company and report it in your tax returns as revenue. You will then claim deductions for the same in mortgages, maintenance repairs, property taxes, and utilities. In most cases, the expenses offset the rental income and negate taxes.
Most business owners are apprehensive about drawing a salary from their ventures, believing they might run it down. It, however, makes perfect sense to draw a regular salary from your company just like you would when working elsewhere. This income also reduces your corporation's taxes through the pointers discussed above.
