Project on tax

8/9/2019 Project on tax

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What is CORPORATE TAX ?

Corporate tax refers to a tax imposed on entities that are taxed at the entity level in a particularjurisdiction. Such taxes may include income or other taxes. The tax systems of most countries

impose an income tax at the entity level on certain type of entities. Many systems additionally

tax owners or members of those entities on dividends or other distributions by the entity to themembers. The tax generally is imposed on net taxable income. Net taxable income for corporatetax is generally financial statement income with modifications, and may be defined in great

detail within the system. The rate of tax varies by jurisdiction. The tax may have an alternativebase, such as assets, payroll, or income computed in an alternative manner.

Most income tax systems provide that certain types ofcorporate events are not taxable

transactions. These generally include events related to formation or reorganization of thecorporation. In addition, most systems provide specific rules for taxation of the entity and/or its

members upon winding up or dissolution of the entity.

In systems where financing costs are allowed as reductions of the tax base (tax deductions), rulesmay apply that differentiate between classes of member-provided financing. In such systems,items characterized as interest may be deductible, subject to interest limitations, while items

characterized as dividends are not. Some systems limit deductions based on simple formulas,such as a debt-to-equity ratio, while other systems have more complex rules.

Some systems provide a mechanism whereby groups of related corporations may obtain benefit

from losses, credits, or other items of all members within the group. Mechanisms includecombined or consolidated returns as well as group relief (direct benefit from items of another

member).

Most systems also tax company shareholders on distribution of earnings as dividends. A fewsystems provide for partial integration of entity and member taxation. This is often accomplished

by "imputation systems" orfranking credits. In the past, mechanisms have existed for advancepayment of member tax by corporations, with such payment offsetting entity level tax.

Many systems (particularly sub-country level systems) impose a tax on particular corporateattributes. Such non-income taxes may be based on capital stock issued or authorized (either by

number of shares or value), total equity, net capital, or other measures unique to corporations.

Corporations, like other entities, may be subject to withholding tax obligations upon makingcertain varieties of payments to others. These obligations are generally not the tax of the

corporation, but the system may impose penalties on the corporation or its officers or employeesfor failing to withhold and pay over such taxes.


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WHAT IS CORPORATE TAX PLANNING?

rovides strategies that are significant in minimizing taxes. Some valuable ways to save include

sponsoring a retirement plan, writing off company assets, claiming depreciation expense, taking

deductions on business automobiles, office expenses, self employment health insurance,

employer sponsored child care resources, and using a home office for the company. Business

tax planning involves understanding what it means to be self-employed. A company owner

needs to be aware of anything that might impact taxes paid. Self-employment tax, company

expenses and deductions, business assets, charitable contributions, shifting income, and

retirement planning are important considerations. "If any of you lack wisdom, let him ask of

God, that giveth to all men liberally, and upbraideth not; and it shall be given him" (James 1:5).

Self-employment tax is due from those who are receiving income as an independent contractor,

sole proprietor, or anyone who is conducting business through selling services or products.

Corporate tax planning provides some ways that a business owner can save on income taxes

both short-term and long-term. Income received must be reported but deductions can reduce

the amount that is actually owed. The deductions can vary depending upon the type of industry

and what are considered legitimate deductions.

Some company owners shift income to a family member as a tax advantage. In order to do this

a family member must be providing some benefit to the business and the amount should be in

line with the type of compensation. Shifting income legitimately can lower a company into a

lower tax bracket. Of course the shifting of income to a family member could raise their income

bracket and this should be considered. This is a business tax planning venture that shouldbenefit both parties and should be done ethically and reasonably. To shift a large amount of

income to a family member just to avoid paying taxes would be unethical unless there were a

legitimate reason such as payment for services.

A retirement plan is a tax advantage to a person who is self-employed. This can be done with or

without employees. However, it would affect the type of plan that is embraced. A self-

employed person can place pre-tax dollars into a retirement account. Having employees mean

providing for them the capability of doing the same. A company owner can also choose other

employee benefit plans to attract employees. Corporate tax planning involves looking out foremployees by offering retirement, cafeteria and medical benefit plans. Cafeteria plans allow

employees to use a portion of pre-tax income for medical or child care expenses. Corporations

do not have to pay payroll taxes or workers comp premiums on the dollars that are paid into a

cafeteria plan or medical benefits plan.

There are many deductions that a company can take advantage of including startup costs,


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business trip expenses, home office use, the use of automobiles, and other assets. The costs of

health care expenses are often deductible especially for the owner and dependents. In

addition, any contributions made to a health savings account are also deductible expenses.

Business tax planning includes knowing what plans provide the greatest benefits and

implementing those plans to not only provide benefits to the company but benefits toemployees as well.

When starting up a company many of the initial expenses can be written off up to a certain

dollar amount. Some of these may include personal property like furniture or office equipment.

Other things that can be written off the first year of purchase include machinery, fixtures,

storage facilities, and other personal property. Other considerations when starting up a

business include travel, vehicle usage, home office, and uniforms. Corporate tax planning

sources suggests making sure that write-offs are legitimate business expenses. When using a

home office for company use only a percentage of expenses can be written off. Travel expense

can only apply when the travel is for the company. Combining company business with personal

business must be taken into consideration for any type of write-off to be legitimate.

There is a degree of burden that is felt from tax legislation by any and every owner. However,

there are positive ways that a corporation can comply with obligations and find ways to

develop a strong company otherwise. Business tax planning includes taking advantage of

opportunities to provide relief when possible. A corporate planning attorney can provide some

good advice on how to structure a company to be optimally successful while remaining

compliant with considerations such as paying taxes. Information can be found on the Internet

that can help prepare a new business owner with how to be compliant in every area when it

comes to reporting income and deducting expenses.

Charitable contributions are a great way for a company to save on taxes and help those in the

community. Many non profit organizations are set up to help those who are less fortunate

within the community that they reside and some offer services to anyone who they can help no

matter where they are located. There are limits on how much of a contribution that can be

counted and the organization has to fit the guidelines used by the IRS to be considered a

legitimate charitable organization. Some of the ones who usually do qualify are churches,

educational companies, scientific or medical research institutions, those that provide true

charitable services and organizations who help animals. There is more information on the

Internet about organizations that truly qualify as charitable.


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COMMON TAX PLANNING STRATERGIES

There are many perfectly legal and socially acceptable ways to increase your wealth in atax efficient manner. Some of these methods are very powerful. Legitimate methods of

increasing your tax efficiency are called tax planning.

Methods that are unlawful are categorised under two different labels: Tax avoidance is where you set up contrived accounting structures and

strategies that abuse a loophole so you can claim large tax deductions or take

advantage of some benefit that was never intended to be used in such a way.

Tax evasion is where you deliberately try to hide income from the Tax Office,by various methods including secret bank accounts, not recording cash

transactions, cooking the books etc.

THE FOCUS OF TAX PLANNING

There are many perfectly legal and socially acceptable ways to increase your wealth in atax efficient manner. Some of these methods are very powerful. Legitimate methods of

increasing your tax efficiency are called tax planning.

Methods that are unlawful are categorised under two different labels:

Tax avoidance is where you set up contrived accounting structures andstrategies that abuse a loophole so you can claim large tax deductions or take

advantage of some benefit that was never intended to be used in such a way.

Tax evasion is where you deliberately try to hide income from the Tax Office,by various methods including secret bank accounts, not recording cash

transactions, cooking the books etc.


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LEGALITY AND ETHICS

There is always a grey area between tax planning, tax avoidance and tax evasion, andthe Australian Tax Office has a surprising amount of discretion to decide where theboundaries lie.

It should be remembered that just because some expert says it is ok, doesnt meanthat it is ok. Also remember that just because a tax adviser openly advertises the

strategy in a newspaper doesnt mean the Australian Tax Office has approved the

scheme. There have been many high profile prosecutions over the years and the fact

that everyone does it makes the ATO more likely to shut it down.

In other words, be careful about listening to advisers that seem to recommend toogood to be true strategies like clever loopholes and novel types of trust that aresupposedly a closely guarded secret of the rich.

Serious penalties including huge fines and jail terms may apply if you do somethingillegal. Blaming your advisor usually wont get you off the hook.

THERE ARE MANY TYPES OF STRATERGIES OF TAX PLANNING.

There is always a grey area between tax planning, tax avoidance and tax evasion, andthe Australian Tax Office has a surprising amount of discretion to decide where the

boundaries lie.

It should be remembered that just because some expert says it is ok, doesnt meanthat it is ok. Also remember that just because a tax adviser openly advertises the

strategy in a newspaper doesnt mean the Australian Tax Office has approved the

scheme. There have been many high profile prosecutions over the years and the fact

that everyone does it makes the ATO more likely to shut it down.

In other words, be careful about listening to advisers that seem to recommend toogood to be true strategies like clever loopholes and novel types of trust that are

supposedly a closely guarded secret of the rich.

Serious penalties including huge fines and jail terms may apply if you do somethingillegal. Blaming your advisor usually wont get you off the hook.


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Project on tax