Toiminimi taxation - business case

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Ohuet
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Joined: Tue Jun 15, 2021 10:12 pm

Toiminimi taxation - business case

Post by Ohuet » Tue Jun 15, 2021 10:38 pm

Hi,

Toiminimi entrepreneurs get trade income but what is taxable?

Let’s assume you make 5000+24% vat = 6200 a month, or 74400 per year (60k + 14400 vat)

For example, you need a car for 62000 (incl 24% VAT: 50k+12k vat) to go to your client, so you buy it.

Also, you have spent 5500 (incl 10% VAT: 5k + 500 vat) on groceries at Prisma to cook your business lunches.

So is the below correct?

1) you collected 14400 vat from your invoices but you have bought a car and groceries relating to your business where you spent 12500 vat, so the amount you owe to the tax office is 14400-12500=1900

2) your trade income (excluding vat) is 60000 gained in revenues - 50000 car business expense - 5000 groceries business expense = 5000 taxable trade income.

3) Let’s say you have a job and this is your side business. You gross income through your employer-employee relationship is 50000 and you pay a progressive income tax. As a result of your side business, you have an additional 5000 remaining, so your total is 55000, which would be taxed at a progressive %.



Toiminimi taxation - business case

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Upphew
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Re: Toiminimi taxation - business case

Post by Upphew » Wed Jun 16, 2021 9:36 am

Ohuet wrote:
Tue Jun 15, 2021 10:38 pm
Hi,

Toiminimi entrepreneurs get trade income but what is taxable?

Let’s assume you make 5000+24% vat = 6200 a month, or 74400 per year (60k + 14400 vat)

For example, you need a car for 62000 (incl 24% VAT: 50k+12k vat) to go to your client, so you buy it.

Also, you have spent 5500 (incl 10% VAT: 5k + 500 vat) on groceries at Prisma to cook your business lunches.

So is the below correct?

1) you collected 14400 vat from your invoices but you have bought a car and groceries relating to your business where you spent 12500 vat, so the amount you owe to the tax office is 14400-12500=1900

2) your trade income (excluding vat) is 60000 gained in revenues - 50000 car business expense - 5000 groceries business expense = 5000 taxable trade income.

3) Let’s say you have a job and this is your side business. You gross income through your employer-employee relationship is 50000 and you pay a progressive income tax. As a result of your side business, you have an additional 5000 remaining, so your total is 55000, which would be taxed at a progressive %.
Over half of the driving must be work related and you must keep driving log. If you really get a car, not van, you can only drive work related trips to keep the VAT deduction possibility. I would suggest that you pay for accountant and ask for their professional opinion, before doing any acquisitions.
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ajdias
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Re: Toiminimi taxation - business case

Post by ajdias » Wed Jun 16, 2021 10:20 am

1) That's how it should work. However...

2) You cannot deduct an expense like a car over a single year. You prob should have an accountant advise you, like Upphew said. If you want to educate yourself Ukko has a series of articles explaining TMI taxation in simple language, like Km deductions or travel compensation.

3)Yes, IIRC there's a small % that is not taxed. Vero will calculate these for you.

FinlandGirl
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Re: Toiminimi taxation - business case

Post by FinlandGirl » Wed Jun 16, 2021 1:02 pm

Ohuet wrote:
Tue Jun 15, 2021 10:38 pm
Toiminimi entrepreneurs get trade income but what is taxable?

Let’s assume you make 5000+24% vat = 6200 a month, or 74400 per year (60k + 14400 vat)

For example, you need a car for 62000 (incl 24% VAT: 50k+12k vat) to go to your client, so you buy it.

Also, you have spent 5500 (incl 10% VAT: 5k + 500 vat) on groceries at Prisma to cook your business lunches.

So is the below correct?

1) you collected 14400 vat from your invoices but you have bought a car and groceries relating to your business where you spent 12500 vat, so the amount you owe to the tax office is 14400-12500=1900

2) your trade income (excluding vat) is 60000 gained in revenues - 50000 car business expense - 5000 groceries business expense = 5000 taxable trade income.
Normal living expenses like lunch are not business expenses.

The full price of the car can be deprecated over 4(?) years.

The result is more like
60000 revenue - 12500 annual deprecation for the car = 47500 taxable profit

This assumes the car is used only for the business, without personal use of the car.

62000 is quite expensive for a car just for getting to a client, Vero might ask later whether such an expensive car was really necessary.
Upphew wrote:
Wed Jun 16, 2021 9:36 am
I would suggest that you pay for accountant and ask for their professional opinion
Full agreement on that.

betelgeuse
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Re: Toiminimi taxation - business case

Post by betelgeuse » Wed Jun 16, 2021 9:33 pm

FinlandGirl wrote:
Wed Jun 16, 2021 1:02 pm
The full price of the car can be deprecated over 4(?) years.

The result is more like
60000 revenue - 12500 annual deprecation for the car = 47500 taxable profit
https://www.vero.fi/syventavat-vero-ohj ... 020-20232/

It's currently possible to deduct 50% of the remaining value on the balance sheet. So it goes 50%, 25%, 12,5% left etc (until the rules move back to 25% per year).

Ohuet
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Re: Toiminimi taxation - business case

Post by Ohuet » Wed Jun 16, 2021 11:51 pm

Hi, thanks for your replies. Hiring an accountant is a good thing of course. I have contacted an accounting firm already.

Also I have done some research and it seems if profits exceed 35000, it’s tax wise to operate as Oy rather than Tmi. Initially I have tried to register an Oy but it required an additional person - deputy board member. I’m a sole person who is operating the business at this point. I wonder whether it’s not possible to open Oy if it’s just me or do I need another person? Some resources say that one person can open an Oy but practically I couldn’t open it..

betelgeuse
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Re: Toiminimi taxation - business case

Post by betelgeuse » Thu Jun 17, 2021 9:22 am

Ohuet wrote:
Wed Jun 16, 2021 11:51 pm
Hi, thanks for your replies. Hiring an accountant is a good thing of course. I have contacted an accounting firm already.

Also I have done some research and it seems if profits exceed 35000, it’s tax wise to operate as Oy rather than Tmi. Initially I have tried to register an Oy but it required an additional person - deputy board member. I’m a sole person who is operating the business at this point. I wonder whether it’s not possible to open Oy if it’s just me or do I need another person? Some resources say that one person can open an Oy but practically I couldn’t open it..
You need two people.

FinlandGirl
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Re: Toiminimi taxation - business case

Post by FinlandGirl » Thu Jun 17, 2021 1:00 pm

Ohuet wrote:
Wed Jun 16, 2021 11:51 pm
Also I have done some research and it seems if profits exceed 35000, it’s tax wise to operate as Oy rather than Tmi.
Depends on the circumstances.
Oy is good when you have huge assets (money, undeprecated car/machines/...) in the company.
If you don't have huge assets and just want to get the business profits taxed and into your own bank account, it doesn't make a big difference either way.

Ohuet
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Re: Toiminimi taxation - business case

Post by Ohuet » Thu Jun 17, 2021 10:14 pm

FinlandGirl wrote:
Thu Jun 17, 2021 1:00 pm
Ohuet wrote:
Wed Jun 16, 2021 11:51 pm
Also I have done some research and it seems if profits exceed 35000, it’s tax wise to operate as Oy rather than Tmi.
Depends on the circumstances.
Oy is good when you have huge assets (money, undeprecated car/machines/...) in the company.
If you don't have huge assets and just want to get the business profits taxed and into your own bank account, it doesn't make a big difference either way.
Why undepreciated car is better in the case of Oy?

FinlandGirl
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Re: Toiminimi taxation - business case

Post by FinlandGirl » Fri Jun 18, 2021 10:10 am

Ohuet wrote:
Thu Jun 17, 2021 10:14 pm
FinlandGirl wrote:
Thu Jun 17, 2021 1:00 pm
Ohuet wrote:
Wed Jun 16, 2021 11:51 pm
Also I have done some research and it seems if profits exceed 35000, it’s tax wise to operate as Oy rather than Tmi.
Depends on the circumstances.
Oy is good when you have huge assets (money, undeprecated car/machines/...) in the company.
If you don't have huge assets and just want to get the business profits taxed and into your own bank account, it doesn't make a big difference either way.
Why undepreciated car is better in the case of Oy?
Up to 8% of the net assets of the company, dividends are taxed in a very favourable way.

betelgeuse
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Re: Toiminimi taxation - business case

Post by betelgeuse » Fri Jun 18, 2021 10:23 am

FinlandGirl wrote:
Fri Jun 18, 2021 10:10 am
Ohuet wrote:
Thu Jun 17, 2021 10:14 pm
FinlandGirl wrote:
Thu Jun 17, 2021 1:00 pm


Depends on the circumstances.
Oy is good when you have huge assets (money, undeprecated car/machines/...) in the company.
If you don't have huge assets and just want to get the business profits taxed and into your own bank account, it doesn't make a big difference either way.
Why undepreciated car is better in the case of Oy?
Up to 8% of the net assets of the company, dividends are taxed in a very favourable way.
Net assets do also affect the taxation of sole traders (capital vs. normal income). One should calculate both while taking into account that Oy has a much higher administrative burden and associated costs. Oy is better the higher the amounts become.

FinlandGirl
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Re: Toiminimi taxation - business case

Post by FinlandGirl » Fri Jun 18, 2021 10:55 am

betelgeuse wrote:
Fri Jun 18, 2021 10:23 am
FinlandGirl wrote:
Fri Jun 18, 2021 10:10 am
Ohuet wrote:
Thu Jun 17, 2021 10:14 pm


Why undepreciated car is better in the case of Oy?
Up to 8% of the net assets of the company, dividends are taxed in a very favourable way.
Net assets do also affect the taxation of sole traders (capital vs. normal income).
If you know a trick how to get normal tmi profits taxed as capital income like in an Oy, I'd like to hear details.

betelgeuse
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Re: Toiminimi taxation - business case

Post by betelgeuse » Fri Jun 18, 2021 12:17 pm

FinlandGirl wrote:
Fri Jun 18, 2021 10:55 am
betelgeuse wrote:
Fri Jun 18, 2021 10:23 am
FinlandGirl wrote:
Fri Jun 18, 2021 10:10 am


Up to 8% of the net assets of the company, dividends are taxed in a very favourable way.
Net assets do also affect the taxation of sole traders (capital vs. normal income).
If you know a trick how to get normal tmi profits taxed as capital income like in an Oy, I'd like to hear details.
That's not possible. I was referring to this for tmi.

https://www.vero.fi/yritykset-ja-yhteis ... rallisuus/

The biggest benefits from Oy come when one does not distribute the profits at all.

Ohuet
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Re: Toiminimi taxation - business case

Post by Ohuet » Wed Jun 23, 2021 12:10 pm

What about, in the case of tmi, if you take a loan to purchase an asset. Can you treat it as a liability to reduce the taxable profit?

Let's say your revenue is 50,000 in the accounting period. You want to buy a car for 40,000. You pay 10,000 and borrow 30,000 from the bank. Will your taxable "trade income" be 50000 - 40000*25% (depreciation of the car) - 30000 (loan) = 10000 (net equity = trade income?).

Is trade income = net equity? Or what is regarded as trade income? Does it come from the balance sheet or from the profit and loss statement?

FinnGuyHelsinki
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Re: Toiminimi taxation - business case

Post by FinnGuyHelsinki » Wed Jun 23, 2021 12:26 pm

Ohuet wrote:
Wed Jun 23, 2021 12:10 pm
What about, in the case of tmi, if you take a loan to purchase an asset. Can you treat it as a liability to reduce the taxable profit?

Let's say your revenue is 50,000 in the accounting period. You want to buy a car for 40,000. You pay 10,000 and borrow 30,000 from the bank. Will your taxable "trade income" be 50000 - 40000*25% (depreciation of the car) - 30000 (loan) = 10000 (net equity = trade income?).

Is trade income = net equity? Or what is regarded as trade income? Does it come from the balance sheet or from the profit and loss statement?
I would be worthwhile to go through some entrepreneurship training, see e.g. https://www.te-palvelut.fi/en/employers ... repreneurs . The questions you're asking is the basic stuff you have to know in order to avoid making costly mistakes.


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