Understanding and avoiding double taxation is vital for any corporate business out there. It can affect your business in many ways, and it is vital to consult reliable tax advisors like the ones at IBISS & CO. to guide you through the process.
This is why our experts have put together a guide to help you get started. Read on to learn more.
How Does Double Taxation Work?
Double taxation is a tax principle where you have to pay your income tax twice on the same income source. This happens when your income is taxed at a corporate and personal level separately. This can also happen when you engage in international investment or trade, and your income is taxed in two different countries.
This is because corporations are considered a separate entity by their owners. Corporations pay taxes on their annual earnings like any other individual. When they give out dividends to their shareholders, the dividend payment also incurs income tax liabilities. Thus, the term double taxation comes into the picture.
3 Ways to Avoid Double Taxation
Retain Earnings
One way of avoiding double taxation is to keep your earnings in the business instead of giving them as dividends. If the shareholders don’t receive dividends, they won’t have to pay taxes, and the income will only be taxed at a corporate level.
Pay Salaries
Another way is to distribute profit as salaries rather than dividends. This way, shareholders will get what they are owed without getting taxed twice.
Split Income
Splitting income can minimise double taxation as progressive tax brackets impacts C corps and individuals. The business owner can take as much as they need from the earnings and leave the rest in the corporation. Consequently, you decrease the personal gross income and the company’s taxable income.
Need Expert Advice? IBISS & CO. Can Help!
IBISS & CO. is your best bet for business and tax advice. If you find yourself in a tax investigation or dispute, you can reach out to our tax advisors. We have some of the best tax accountants in London and Walsall on our team who can guide in all types of tax issues, including double taxation.
Get in touch with us today.
