Business owners can adjust their tax bill by working on the ratio of their salary to the company’s profit. Here is an explanation.
To a certain extent, fiscal optimization is possible by making an adjustment between private income (the business owner’s salary) and the company's profit: if the company sustains a loss which can be foreseen or if it finds itself in a slow growth phase, it may be judicious to reduce its own deductions (salary, dividends, interest, etc.).
As a consequence, the entrepreneur pays less individual tax given that his/her income has decreased. In addition, the business does not become unprofitable and can thus avoid creating a bad outward impression. The reported reduction in personal deductions, however, must relate credibly to the growth in assets and rate of expenditure.
Conversely, if the business is projected to make a profit, an entrepreneur may increase his/her personal income. Admittedly, he/she will pay slightly more personal tax, but the company's total taxable profits will decrease.
However, the tax authorities do not allow massively increased salaries. These are considered latent profit payments and are calculated as additional profits for the business. To avoid such difficulties, wage payments must remain within the usual average for the sector and be reasonably proportionate to the company’s financial capacities.
