Three ways to cut your tax bill

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The income tax bill is often the highest expenditure of the working man. It often takes away some twenty (or even higher) percent from the tax payer's take home pay. In short, your January and February income goes just to pay income tax. And that, needless to say, is a lot of money going out just for one item.

As mentioned in the book Millionaires are from a different Planet!, while we should always pay our taxes to ensure the goose continue laying the golden eggs, it does not mean we should just hand over our money blindly. By all means, pay your taxes and pay your dues, but not more. Folks, patriotism is not measured by the amount of taxes you pay. In other words, we should plan our income so that we pay the least tax possible.

Let's look at three ways in which you can reduce your tax bill - legally of course. After all, we do not want to be the richest man in jail.

Change the recipient

The first thing to do is to change the recipient of the money. For example, if the payment collected is paid to the husband, try to change it to the wife's name. This is of course assuming that the husband is in the higher tax bracket.

What is happening now is that the wife is now the recipient of the income. The money will be taxed under her name. Ad if her tax bracket is lower than the husband, there will be a tax savings there.

Change the nature of income

If you run a business, by changing the nature of income, you will also reduce your tax bill.

As you know, in Malaysia, revenue income is taxable while capital is not. So whenever possible and when it make business sense, try to change the nature of income from revenue to capital. In fact, once you do this, there will be NO taxes at all from that particular income as it is now capital.

To show an example, if you close a company down after declaring dividends from the proceeds of an asset sale of RM10 million, you'll be taxed on the dividends. It is revenue income. Not a very good move.

All that you need to do to save that money is to simply close the company after the sale of the asset. The gain is now capital instead of revenue and therefore not subject to tax at all. And it doesn't get any better than not paying anything!

Change the timing of the income

The third way you can save on taxes is by changing the timing of the income. If you are due to receive a large payment near the end of the year (like now, for example), you can request your client to make the payment only in January. Your client will be only too happy to comply. As you have not received the payment this year, you will not be taxed on the money. This will of course save you money as well.

The lesson here today

These are just three ways in which you can reduce your tax bill. As you can see, they are not very difficult to carry out. All you need to do is to sit down and do a little
bit of planning.

A little of bit of knowledge, time and effort will always make or save you money.

Copyright © Azizi Ali 2006

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