How do we find the provision for cash
What options do I have in my balance sheet?
If you are self-employed and show the profit of your company by means of a balance sheet, then you have numerous design options - from provisions to special depreciation and various options. In this post we have put together the 10 most interesting design tips with which you can control the amount of your transfers to the tax office.
The 10 best tax tips for your balance sheet
Structure option 1: Provision for uncertain liabilities in the balance sheet
When you prepare your balance sheet, you are allowed to post a profit-reducing provision for contingent liabilities. In practice, for example, these are often provisions for possible warranty obligations or litigation and compensation costs if you are sued by a customer, a competitor or a business partner. This is especially helpful if you have made a large profit and want to reduce the tax burden this year. If the liabilities are later lower than expected, you will of course have to release the provision.
Danger: Anyone who sets provisions too arbitrarily, ultimately only creates a tax deferral and no real tax advantage.
Design option 2: Postponing the income to later years
If you receive money from customers for services that do not have to be performed until the next year (e.g. maintenance contracts or advance rent payments), you can passively defer these payments in the balance sheet (so-called deferred income). This means that the payments relating to benefits in the next year or the year after that do not yet increase profit (and thus your tax burden) in the current year. Since taxes are due a year later, there is not only a tax advantage, but also a liquidity advantage in the current year.
Design option 3: Fixed tax rate for profits not withdrawn
If an individual entrepreneur determines his profit by means of a balance sheet and does not withdraw this completely for private purposes because the money is to be invested in the company, he can apply to the tax office for taxation at a fixed rate of 28.25% for the profits not withdrawn. In contrast to the top tax rate of 42%, this is a real tax break.
Danger: Applying for the fixed tax rate is only worthwhile if the majority of the money actually stays with the company, e.g. B. for investments. On the other hand, if the money is withdrawn in the following year, an additional 25% tax must be paid.
Design option 4: Reserve for replacement procurement
If an item of the company's fixed assets leaves the company - for example due to force majeure (theft, destruction) - and a profit arises from the payment of the insurance, this profit does not necessarily have to be taxed. Because if a replacement investment is planned for the next year, a reserve for replacement procurement can be shown in the balance sheet. As a result, the profit is not taxed, but is deducted from the purchase price when the substitute asset is purchased; then the remaining amount is written off.
Design option 5: Investment deduction for planned investments
If you are planning to invest in movable fixed assets (e.g. cars, machines) in the next 3 years, you may be able to deduct 40% of the expected investment costs as operating expenses from the profit in the year of planning. The prerequisite is that the value of the business assets in the balance sheet for the year of deduction does not exceed EUR 235,000. The investment deduction is not deducted from the balance sheet, but from the profit after the tax balance sheet has been drawn up.
Design option 5: Check special depreciation
If you buy movable objects for your company that are at least 90% operational in the year of purchase and in the following year, you may benefit from the 20% special depreciation in addition to the regular depreciation. Here you have to take a look at the balance sheet of the previous year: If the value of the business assets in the previous year balance sheet did not exceed EUR 235,000, the special depreciation is permissible.
Design option 6: Distribution of the transitional profit over 3 years
If you have changed the method of determining your profit and are now calculating your profit according to the balance sheet instead of using the income statement, you have to calculate a transitional profit because of the differences between these two profit determination methods. Special feature: This transitional profit is determined off the balance sheet and may be taxed over a period of 3 years on request. That brings tax and liquidity advantages.
Design option 7: write-off of receivables in the balance sheet
You have to activate receivables from customers and business partners in the balance sheet to increase profit. However, if you know reasons that the receivable could default (or will actually default due to bankruptcy or death), you can write off a profit-reducing receivables write-off on the balance sheet. In the case of a flat-rate correction due to possible payment defaults, you must use the previous experience on the payment defaults.
Design option 8: Balance sheet provision for an upcoming tax audit
If your company is classified as a large company by the tax office, the profits will be checked completely by the tax office as part of an audit. For the resulting costs (tax advice, room rental, etc.), you are allowed to enter a profit-reducing provision in the balance sheet in advance. However, the provision in the balance sheet may not contain any additional tax payments.
Design option 9: Right to choose business assets
If you draw up a balance sheet to determine your profit, you have the right to choose whether you want to treat these as business assets or as private assets when purchasing business items. The prerequisite for this, however, is that you use the item for at least 10% and at most 50% for business purposes. If you use it to more than 50% operationally, it must be assigned to the business assets; If you use it at least 90% privately, it must be part of your private assets.
Design option 10: Change from accounting to EÜR
Sole proprietorships and partnerships can switch from accounting to the income statement (EÜR) in the following year if they have profits of less than EUR 60,000 and sales of less than EUR 600,000 in a financial year. This change from accounting to EÜR should be reported to the tax office. With this change, numerous design options for the balance sheet are no longer available, but the income surplus calculation also offers numerous design options. In general terms, the income surplus calculation has the following advantages in particular:
- The income surplus calculation is simpler than the preparation of the balance sheet (less time required; lower consulting costs).
- Only the expenses actually incurred and the income received are posted in the determination of profits. This allows the profit to be shifted in a more targeted manner.
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