Tax planning tips for business owners to avoid paying too much tax

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Presently, business owners in Ireland are paying as much as 55% of their income to the Revenue Commissioners (Income Tax 41%, PRSI 4% and Universal Social Charge (USC) 10%).

To reduce the income tax burden on business owners, OSK have been advising their clients of tax planning steps to avoid paying too much tax.

The most common steps are outlined below:  

• Sell a personal asset to your business and realise a Capital Gain  

If you own the business premises or have purchased an investment property, it may be an opportune time to consider selling to your company and pay tax on the capital gain at @25% rather than draw as salary and pay 55%.

•  Tax-free termination payment

If you are made redundant from a business that employs you, you can take a tax-free redundancy lump sum depending on your earnings and on your length of service with the company, up to a maximum of €200,000.  

•  Liquidate your business

In a liquidation shareholders are entitled to what's left after everyone is paid - this gain is taxable at 25% rather than at 41% plus PRSI/levies.

• Dispose of your shareholding and avail of retirement relief

Currently, if you are over 55 years and have worked in a business for over 10 years then the proceeds from the disposal of the business may be exempt from Capital Gains Tax for sums of up to €750,000. This exemption applies to spouses and each spouse has a separate €750,000 exemption.

•  Pay pension contributions through the business

If you are personally contributing to your pension scheme you are restricted to contributing a proportion of your income - Directors can pay any amount into a pension.

• Reclaim mileage and subsistence

If you travel for work, then you are entitled to reclaim travel and subsistence from the business tax-free using Civil Service rates. Check to make sure you are claiming the maximum.

•  Employ your spouse in your business

If your spouse assists, or can assist, with the running of your business you should pay your spouse through the business. Your income tax limits and credits are higher as a dual income family.

• Employ your children in your business

If you have un-waged children of working age, still at school or college, that can assist you in your business, you can employ them during the summer or at weekends in the business. They can be paid an amount up their tax-free limit.

 For further information please contact Dylan Byrne Partner OSK.

Need help with tax return 2013? Contact OSK today to assist you in filing your personal tax return before the October deadline - email advice@osk.ie.

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