Income tax can be complex, especially for entrepreneurs, including CEOs who have to deal with various tax rules and deductions. However, with the right approach, you can save tax and take advantage of financial opportunities. At Brand Bookkeepers, we make sure your tax return is filed correctly and worry-free. Need help with tax returns? Contact us and let us take the worry out of your tax return! Below, we discuss a number of advantages and opportunities that you, as an entrepreneur, can use to optimise your tax position.
The three income tax boxes
Dutch income tax is divided into three boxes, each with its own tax regime and rules. Everyone has to file annual income tax returns, but for entrepreneurs there are additional schemes and deductions that allow them to gain tax advantages. This blog focuses specifically on income tax returns for entrepreneurs, including DGAs with a BV or holding company.
- Box 1 – Income from work and home: box 1 includes income from employment, profit from business (provided it is a sole proprietorship or VOF) and income from one’s own home. This means that the salary of a DMS at a BV or holding company is also included here, but is taxed in a different way than profit from a sole proprietorship or VOF. In addition, pension payments and additional taxable income from a lease car fall under this category. Tax rates in box 1 are progressive, meaning you pay a higher rate as your income rises.
- Box 2 – Income from substantial interest: If you own at least 5% of the shares in a company, your income from dividends and sales profits is taxed in box 2. This rate is lower than in box 1, but has an incremental structure, so it can still end up being higher than the rate in box 1. Strategic planning of dividend distributions can help utilise tax benefits and minimise levies. We advise entrepreneurs on this and help optimise the allocation between box 1 and box 2 while preparing financial statements and income tax returns. For entrepreneurs with a sole proprietorship or VOF, box 2 is less relevant as they do not own shares in a company. They are taxed directly in box 1 based on their profit from business.
- Box 3 – Income from assets: This box taxes assets you own, such as savings, investments and second homes. The tax authorities calculate a notional return, regardless of the actual return you earn. This can be disadvantageous, but there are ways to reduce the tax burden, these ways are described further below.
Making smart use of deductions as an entrepreneur
There are various deductions that can lower your tax burden. Some deductions apply generally, while others apply specifically to entrepreneurs. Here are some general deductions you can consider as an entrepreneur:
- Mortgage interest deduction: If you own your own home and have a mortgage, you can deduct the interest paid from your taxable income. This makes you pay less tax, which can reduce your monthly expenses. Be aware that there are rules and conditions attached, such as the obligation to repay the mortgage within 30 years.
- Healthcare and study costs: Certain healthcare expenses, such as medication, aids or adjustments to your home due to a medical condition, may be deductible under certain conditions if they exceed a certain threshold. Study costs for yourself or work-related training can also be tax-advantaged in some cases, provided they are directly related to your profession and you are not entitled to them through another scheme.
- Donations to charity: Do you donate to a charity registered as an ANBI (Algemeen Nut Beogende Instelling)? Then you can deduct these donations from your taxable income, provided you meet the conditions. Periodic donations with no threshold amount often offer the most tax benefit, while regular donations are only deductible above a certain threshold.
- Entrepreneur deductions: Specifically for entrepreneurs, there are several deductions to reduce the tax burden. These include the self-employed deduction, the start-up deduction and the SME profit exemption. These deductions can make a significant difference to your final tax bill. We help you determine whether you are entitled to them and how to make the most of them.
How entrepreneurs optimise their tax position
As an entrepreneur, you can achieve significant tax benefits through strategic choices. This goes beyond simply applying deductions; it is about smartly allocating your income and expenses, making the best use of tax schemes and planning investments in a tax-efficient way. Among other things, we help you with:
- Optimal profit distribution: By strategically spreading your income, you can avoid ending up in a higher tax bracket. This can be done, for example, by choosing between dividend distribution and salary, or by spreading income over several years.
- Optimise provisional assessment: By properly aligning your provisional assessment with your actual income, you avoid having to pay a large amount in the final assessment. This helps with better cash flow and avoids unexpected financial burdens.
- Smart investments: Investing in your business can not only contribute to growth, but also provide tax benefits. Consider investment deductions, environmental investment deductions and spreading investments to make the best use of depreciation opportunities.
Need help with your tax return?
Want to make sure your tax return is filed correctly and you do not miss out on any deductions? We make sure you don’t miss out on any tax opportunities and help you prepare your financial statements and take care of your income tax.
Need help? Contact us and let us take care of your tax return in full!
