Dissecting the Misconceptions of Corporate Tax Reporting – Is Reporting “Losses” Really Saving Money and Time?
There is a misconception passed down by “predecessors” that if a company is losing money, it can report losses to the tax bureau and avoid tax, thus saving money and time. In fact, even if a company has no profit or even runs at a loss, it can still claim tax deductions.
For owners of “Unlimited Companies,” they can make use of their personal tax exemption.
For example, many owners of unlimited companies have the question of whether they should pay themselves a salary. Many unlimited companies report taxes on their own and it is easy to have the idea of reporting losses directly if there is no profit, and not having to pay taxes for several years. However, doing business always has its ups and downs, and many small and medium-sized enterprises have suffered through several years of “winter under the pandemic.” When the company starts making money in the future, the salary expenses paid to owners in the past few years can actually be claimed as tax deductions. In addition, taxpayers automatically enjoy a basic “personal tax exemption” of about HKD 130,000 per year, and can also claim tax exemptions for supporting parents and children. As long as proper tax planning is carried out, owners who receive a monthly salary may also have a high chance of not having to pay taxes. If a “no tax clamming reporting” strategy was taken in the beginning to save time and procedures, it would be regrettable when less deductible can be claimed in the future.
Losses vs. Earning Little, What is the Difference?
If the owner believes that not reporting taxes for several years can pay less, there are even greater implications down the road. In the case where the company is making money, even if the profit is not much, there are still opportunities to find a way out or a new direction through bank financing or business cooperation. On the contrary, if the company has not reported taxes for several years and shows a “loss” situation. When expanding business by attracting new investors or applying for a loan from the bank, owners will be questioned about the ability to repay. With several years of “blank” tax reporting records, development opportunities slip away, and no matter how many reasons there are, there is no defense.
Tax reporting is complicated. It is better to consult professionals. It is recommended that employers consult an accountant first, report the company’s situation truthfully during tax reporting, and avoid reporting losses casually for various reasons, to avoid losing more due to small mistakes.
A Warm Reminder for High-Paid Professionals:
Other than annuities, medical insurance, and voluntary MPF contributions, what other methods can be used to reduce taxes? The ideal approach is to use “restructuring” to achieve the best tax benefits, which can reduce tax payments by up to HKD 1xx,xxx. Please consult a professional accountant for personalized tax planning.
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