At the end of accounting period or the tax filing season, some business owners boast of a variety of wacky tax deductions. But how do they achieve this yet we all adhere to the same accounting regulations in Singapore? The secret is to understand the ordinary and necessary business expenses.
The expenses that you incur for your business or primary employment are what we call ordinary and necessary expenses. They should be recorded and classified accurately. This will enable you to use your accounting function to minimize tax burden (Also see Corporate Taxation in Singapore). Note that the ordinary and necessary expenses are considered tax deductible every year.
The ordinary and necessary business expenses must be relevant and necessary to your business. An ordinary expense is one that is common and accepted in your business or trade. A necessary expense is one that helpful and appropriate to your business. Note that a business expense doesn’t need to be indispensable to be considered necessary. Note that you should also keep the receipts for these transactions safely as part of the bookkeeping exercise, unless you already have a bookkeeping service provider to assist you because you may need them when filing your business tax returns (Also see Common Accounting Mistakes made by Businesses).
I know this sounds hard, but it is important to understand the Singapore regulations regarding these expenses to ensure that each expense is recorded accurately for accurate accounting. With that, you can be assured that any ordinary and necessary business expense you incurred will be deducted during tax filing.
In the normal course of your business operations, understanding ordinary and necessary business expenses will enable you to reduce your business tax. To do so successfully, need to have sound knowledge regarding acceptable accounting practices that touch on taxation and how you can utilize these practices to benefit from tax deductions. Always be keen not to violate any accounting standard or principle. Otherwise, you will find yourself in serious problems.
It is worth noting that most business owners are not experts in accounting. Though they may have knowledge regarding accounting, they may not be perfect when it comes to accounting for taxation purposes. If you are sure that you are one of the business owners that don’t have a strong grasp of accounting concepts, principles, and standards, don’t opt to do it yourself, engage an accounting service in Singapore to sort things out for you.
Consider hiring a pro. An in-house accountant or Chartered Accountant (CA) (Also see Your Startup’s Top 2 Most Trusted Accounting Allies) can be helpful to advise you and undertake all accounting activities in your business. If you don’t know whom to hire for such tasks, we have the expertise.