How to reduce the taxes on your business?

Taxation is as old as ancient Egypt, which means the taxation concept was born around 2000-3000 BC maybe before it but we don’t know that yet. Since then it has evolved into our current tax system. Taxes are financial contributions from your income to the government, the government has imposed them on every individual citizen of the country. Every country has its tax system and the amount you have to pay as a tax to the government depends on your income.

The government spends these taxes in the country to strengthen national security by buying weapons etc, providing medical assistance, and building infrastructures so that every citizen in the country could benefit from it.

Taxes has it’s own laws and the people who don’t know the taxes laws are usually the one who pays more taxes. So what do I mean by that? Warren Buffet is one of the well-known millionaires in the United States, he once said in 2013, Although he pays a higher tax bill he’s still paying a lower tax rate than his secretary relative to her income. To understand taxes more deeply you have to look at the types of taxes and you’d know where you pay a lot of taxes.

Tax Systems

Progressive Taxation

The taxation system in the United States is progressive. A progressive tax is a type of tax when your income increases the tax on the income also increases. For instance, before you were earning $20,000 and your income tax was 10 percent and after an increase of your income to $50,000 then the tax will also increase from 10 percent to 20 percent. This same method is applied to small and big companies. The reason the United States and other countries use this tax system is to stabilize equality in society. In this system the wealthier you are the more taxes you pay.

Regressive Taxation

This tax system is the opposite of Progressive taxation. In Regressive taxation when your income increases the tax on the income will decrease. It is a more beneficial system for the rich than for the poor. For instance, if your income increases to $5000 from $1000 then the taxes will decrease meaning if before the tax on your first income of $1000 was 10 percent then the tax on your second income of $5000 will decrease to 5 percent. Many people don’t support this tax system because of inequality whereas many people support it because people will start working hard and technology will get more modern.

Proportional Taxation

In this tax system, everyone pays the same amount of taxes, no matter if you are an upper, middle, or lower class individual you have to pay equal taxes. Some lower and middle-class people oppose it. They think the upper class should pay more taxes because they are rich and can afford any high taxes.

Escape High Taxes legally

As you’d know taxes in the United States are skyrocketing which makes it difficult for startups to survive their childhood. It is awfully difficult to escape the taxes in the United States. However, there are some tactical strategies that these big corporations use to avoid heavy taxes. Google which can also be called the driver of the internet has moved its main and largest headquarter (Outside of the US) to Ireland because of lower tax rates.

The company has saved billions of dollars after moving its headquarters to Ireland. Ireland is considered one of the tax haven countries in the world. The tax rate in Ireland is 12.50 percent and in the United States is 25.75 percent. It’s not only Google that does this trick but Apple and Amazon also stash their profits offshore. When the financial crisis hit in 2008, a report revealed that all the big companies such as Apple, Berkshire Hathaway, and Boeing stashed their profits in offshores which helped them save billions of dollars in taxes and suffered less in the financial crisis.

Final Thoughts

Stashing profits offshore is just only one wise strategy that can be used to avoid high taxes. There are plenty of strategies that can help you avoid any type of tax. The taxes may not be totally reduced to zero but they can be reduced to an amount that is equal to nonexistent for your company. Depreciation is another type of strategy in terms of avoiding tax that can help you reduce the tax on an asset and real estate equivalent to zero.