The topic of tax deduction for individual entrepreneurs causes difficulties. Wording in official documents creates confusion in the minds of citizens. Many individual entrepreneurs do not have the education to “decipher” regulations. Let's look at the explanations of the Ministry of Finance and figure it out.
“Am I a trembling creature or do I have the right”?
In letter N 03-04-05/66945 dated November 19, 2015, the Ministry of Finance reports that deductions apply to the income of individuals (including individual entrepreneurs), taxed at a rate of 13%.
It follows from this that individual entrepreneurs who do not have income as individuals at the rate of 13% are deprived of the right to receive benefits. And it doesn’t matter whether the individual entrepreneur works according to the “simplified” or “imputed” method.
Educational program. A tax deduction is an amount that reduces the amount of income on which a person is required to pay tax.
Example. Ivanov carries out business activities as an individual entrepreneur. He pays himself as a director a salary and deducts 13% personal income tax. Ivanov can take advantage of all the tax breaks that are available to individuals.
The question arises: “Is there a tax deduction for individual entrepreneurs under the simplified tax system?” It is provided, but for businessmen who, as individuals, receive income with a 13% tax.
Article 346.11 of the Tax Code states that individual entrepreneurs working under the “simplified system” do not have to pay personal income tax. This means they cannot receive deductions from commercial activities.
Property deduction
An individual entrepreneur acquired a real estate property as an individual or spent money on housing construction. He has the right to a property deduction if he received income subject to a 13 percent tax.
Thus, benefits are provided:
- sale and purchase of real estate;
- purchase of property from an individual by a municipality or state;
- housing construction.
Example. Individual Entrepreneur Petrov works on a “simplified basis” without income as an individual. He buys an apartment. It will not be possible to get back some of the money spent. But the spouse who is paid the salary can provide documents for a refund.
The same principle applies to paying off a home loan. And it doesn’t matter in whose name the loan agreement is drawn up - the husband or wife. Both spouses receiving income with a tax rate of 13% have the right to a refund.
When selling any real estate that has been owned for more than 3 years, tax benefits are not provided. After the transaction, there is no need to file a declaration and pay 13% personal income tax.
An exception is commercial real estate (non-residential premises, land plots, technical networks). Regardless of the period of ownership of such property, after its sale you will have to file a declaration and pay 13% (clause 17.1 of Article 217 of the Tax Code). It will be possible to return some of the funds.
Social calculation
Article 219 of the Tax Code regulates the following types of expenses for receiving social deductions:
- charity (no more than a quarter of annual income);
- education (your own and your children’s);
- treatment (own, children, wife or husband, parents);
- pension contributions to a non-state fund;
- independent replenishment of the funded part of the pension.
Is an individual entrepreneur entitled to such a tax deduction? The general rule applies. Without taking into account the tax system under which a businessman works, he will receive benefits on income taxed at a rate of 13%.
Example. IP Sidorov spent a large sum on dental services and would like to return some of the money. He works under a simplified taxation system (income “minus” expenses) and, in order to reduce the “tax burden,” he pays himself a salary, holding the position of head of the logistics department. He receives money not only as an entrepreneur, but also as an individual. He pays 13% personal income tax monthly from his salary, so he will be able to return part of the money spent on crowns and fillings.
What about the “imputed people”?
Individual entrepreneurs paying UTII are freed from the need to pay 13% personal income tax. Can individual entrepreneurs receive a tax deduction in this case? No, because they do not pay 13% on their commercial income, and therefore there are no tax breaks for them.
But if an entrepreneur has, in addition to commercial income under UTII, other income at a rate of 13%, then he will be able to take advantage of the privilege.
Just a note. If an individual is entitled to two or more standard deductions, only one (the more profitable one) can be used. That is, it is impossible to use several deductions by summing them up.
Practice shows that only a small part of individual entrepreneurs can take advantage of the relief and return part of the money earned through hard work.
Hello friends!
I have already written more than once that if you are just starting to do your own business, be it an online store, providing services, information business, etc., you do not need to immediately open an individual entrepreneur. However, after such a statement, questions began to come to me: is this really so, how to understand that the moment to register an individual entrepreneur has come, there were also those who decided that it was not necessary to open an individual entrepreneur at all. Therefore, I decided to record a separate video to fully understand this issue and not mislead you.
You can watch the video or continue reading the article.
What is “Entrepreneurial Activity”?
According to the definition of business activity contained in Civil Code of the Republic of Belarus and the Russian Federation, it (and in fact, a business) is an independent activity carried out at one’s own risk, aimed at systematicmaking a profit from the use of property, sale of goods, performance of work or provision of services by persons registered in the manner prescribed by law.
Let's look at this concept in more detail.
Everything is clear with the word “independent”; one person or a group of partners carries out activities on their own behalf and under their own property responsibility.
The next word is “systematic”; I did not find a clear definition of this term in the code, but I can believe that an activity that is repeated 2 or more times a year is considered systematic. That is, if you made 2 sales, then this can be considered a systematic activity.
Next, let’s look at the word “profit,” and this is where things get interesting. After all, profit is not income, although many people confuse these concepts. Income is the total amount of money you received from selling goods or services, and profit is income minus costs. And the costs include not only the cost of the product, but also the creation of a website, the purchase of hosting and a domain, investments in advertising, and so on. And how can your two sales cover all costs and still have a profit left over? I highly doubt it. And if this point is not observed, then such activity can no longer be called entrepreneurial. And to prove this, I recommend collecting all the receipts that confirm your expenses.
And now calculate how much you need to sell to cover all costs and make a profit.
Of course, theoretically, the tax office may be interested in you. But then she will have to prove that you were engaged in systematic activities (made 2 or more sales) and made a profit. And making a profit is not so easy to prove. Let's assume the worst case scenario, the tax inspectorate takes an interest in you and you are accused of illegal business activities. What threatens you in this case? Prosecution for carrying out business activities without registering an individual entrepreneur is provided for both in the Code of Administrative Offenses and in the Criminal Code. I will consider this issue in accordance with the legislation of the Republic of Belarus and the Russian Federation, if you are from another country, then look for this information on the Internet.
According to the Code of the Republic of Belarus on Administrative Offences, Article 12.7. Entrepreneurial activity carried out without state registration or without state registration and special permission (license), when such a special permission (license) is mandatory, if this act does not constitute a crime, shall entail the imposition of a fine in the amount up to one hundred basic units with confiscation of objects of an administrative offense, instruments and means of committing an administrative offense, as well as income received as a result of such activities, or without confiscation.
According to the Code of the Russian Federation on Administrative Offenses, Article 14.1., carrying out business activities without state registration entails the imposition of an administrative fine in the amount of from five hundred to two thousand rubles.
What about the criminal code? They may be brought to attention if:
For citizens of the Republic of Belarus. Article 233 of the Criminal Code.
Entrepreneurial activity carried out without state registration or without a special permit (license), when such a special permit (license) is mandatory (illegal business activity), associated with the receipt of income in a large amount (if the amount is a thousand or more times the base amount), – shall be punishable by a fine, or deprivation of the right to hold certain positions or engage in certain activities, or arrest for a term of up to six months, or restriction of freedom for a term of up to two years, or imprisonment for a term of up to three years.
For citizens of the Russian Federation. ST 171 UK.
Carrying out business activities without registration or without a license in cases where such a license is required, if this act caused major damage to citizens, organizations or the state or is associated with the extraction of income in a large amount (from 250,000 rubles), - is punishable by a fine of up to three hundred thousand rubles or in the amount of wages or other income of the convicted person for a period of up to two years, or by compulsory work for a period of up to four hundred eighty hours, or by arrest for a period of up to six months.
So is it worth opening an individual entrepreneur right away?
I believe not, until you start receiving a stable income. Since any business must go through a testing stage, you must understand whether your niche is really in demand and whether you want to do it.
Decide for yourself. But remember that the responsibility for the actions you take falls on your shoulders. I am not a lawyer and only expressed my opinion on this issue.
My experience
Personally, I registered an individual entrepreneur as soon as I decided to start working for myself. And I think that I did it in vain, because... I didn’t receive any income for six months, and I had to visit the tax office, fill out papers and constantly report on my income.
For three months I thought about what kind of business to open and for another three months I worked on creating an online store. And even when I decided that I would open an online store and came to the district executive committee to register it, they asked me for the website address, but at that time I didn’t even have a website and I hadn’t even come up with a domain name yet. To which they told me that first I need to create a website, start working and only then come and register them. Therefore, do not rush to register an individual entrepreneur, organize a business, start selling. But at the same time, there is no need to delay the registration of an individual entrepreneur, so that this does not lead to criminal liability.
If there are lawyers among us, then express your professional opinion on this issue.
Good luck, friends!
In the process of work, entrepreneurs have a question: can an individual entrepreneur receive money on an individual’s card from his business partners and from his own account, and whether a card account can replace a current account. The need for this direction of funds arises among entrepreneurs with low cash flows. The article explains the feasibility and legality of these operations, and also describes what tax and banking risks arise.
Individual entrepreneurs are business entities and in the process of work they need to make monetary payments with partners and clients.
The legislation allows you to pay for goods and services, as well as receive payment for objects provided, in two ways:
- in cash, when payment transactions are processed through a cash register;
- non-cash method, in which, for example, payment is made using a bank account.
There is no obligation for individual entrepreneurs to open a bank account, and for some types of activities all proceeds are received in cash. However, entrepreneurs with large turnover, as well as organizations, require non-cash payments, for example, to pay for work under a contract. Contacting a banking institution and concluding an agreement with it becomes inevitable.
In addition, it becomes possible to transfer money from an individual entrepreneur’s account to an individual’s card as part of a salary or payment under a civil employment contract. This operation also applies to non-cash transactions, since citizens also open an account with a credit institution when receiving this banking product.
A businessman acting individually must somehow receive the money he earns. Transferring money from a current account to a personal card is one of the ways to achieve this task.
Tax legislation, as well as a banking agreement with an individual entrepreneur for account servicing, do not contain restrictive rules for such an operation. However, in order to avoid disputes with tax authorities, the payment order should indicate the correct purpose of the transfer.
The options are:
- for personal needs;
- transfer of own funds.
Sometimes the money that goes to your bank card is also designated by individual entrepreneurs as income from business. However, such a definition is not very accurate and the tax office (at the request of the bank) may ask what is meant by this phrase.
The wording that should be avoided is the designation of money transferred from the account as salary. When the amounts are named as such, the entrepreneur is obliged to withhold personal income tax from them and charge insurance premiums. But an individual entrepreneur does not have a salary - he has income, on which a single tax is charged, which also replaces income tax. As a result, a conflict arises, allowing the tax inspectorate to assess additional tax.
If the operation is being carried out for the first time and there are doubts about your own competence, you should consult with bank employees who will suggest the safest wording.
Banks do not charge fees for this type of transaction, but they have the right to limit the amount of money withdrawn to the card. Usually they set a certain monthly limit, depending on the entrepreneur’s turnover and the volume of loans taken from a credit institution. Especially great difficulties arise if the card is from another bank or it is a credit card.
When making payments related to business activities, it becomes necessary to transfer money to bank cards of other persons. Such an operation inevitably leads to taxation of the funds received by the recipient, since for him they look like income.
The translation must be completed in compliance with the following requirements:
- The individual entrepreneur carries out the transfer of money on the basis of a contract or agreement (labor, civil law, etc.);
- the entrepreneur fills out a payment order with a mandatory indication of the reason for the transfer and details of the agreement between the parties.
Violation of the above conditions may lead to the fact that the tax inspectorate, in the absence of justification for the transaction, will protest the attribution of the sent amounts to expenses and charge additional income tax with insurance contributions.
Citizens must accept payments from individual entrepreneurs, taking into account the fact that the money received is taxable income. If the funds are received as wages, then the responsibility for withholding personal income tax lies with the tax agent - the entrepreneur and the recipient does not care about further reporting.
If the received amounts are remuneration for services rendered or work performed under the contract, then the calculation of income tax is done by the recipient. He also submits a declaration at the end of the tax year for all receipts of this kind.
When, after receiving payment from clients, there are not enough funds in the current account and the operation needs to be carried out, an individual entrepreneur has the right to top up the account.
There are two ways to add:
- depositing cash into the bank's cash desk;
- transfer of the missing amount from the card.
When depositing through the cash register, the purpose of the deposit is indicated - replenishment of the account. The entrepreneur fills out a minimum of documents and deposits money; the rest of the actions are up to the employees of the institution.
The second way - transferring from a card is much more complicated, since it requires entering full bank details. This procedure is carried out either through ATMs (or terminals), from a mobile phone if online banking is connected, or from a desktop computer on which the client-bank program is installed.
The user needs to take special care when entering numeric values. An error in even one digit may result in incorrect enrollment.
The program installed in the ATM will correct the user in the text of the bank's name, its correspondent account and BIC, but the correctly entered recipient's current account is the responsibility of the entrepreneur.
Can an individual entrepreneur receive money on his individual card?
In the absence of a current account, many individual entrepreneurs operate in cash, and, if necessary, accept it on personal cards.
There are the following risks:
- The agreement with the bank usually contains an indication that the current account (card) is prohibited from being used for commercial purposes. For card servicing, the client pays a little and once a year, and for a current account - monthly and multiple times more. Therefore, the credit institution has the right to consider the transaction performed a violation of the agreement and block the card.
- The tax service can convince you that the money coming to the card is commercial income. But then all other transactions, even of a personal nature and not considered income (for example, social benefits for a child), will also have to be subject to personal income tax or deciphered in detail. And detailed bank statements are expensive.
- If an individual entrepreneur combines several taxation systems, then he will not be able to correctly maintain separate accounting, which is required when combining regimes. For example, the patent tax system provides for a fixed payment and does not focus on the amount of income for the chosen type of occupation. And the “simplified” system, which is allowed to be combined with PSN, requires constant accounting of all income and expense transactions. When the money arrives in one account, the tax office has the right to count everything as income from classes on the simplified tax system.
In addition to the listed risks, there is another one - the bank may consider regular and large receipts on a personal card to be money laundering and report this fact to law enforcement agencies. Strict regulations have been established for credit institutions in this area, due to the fight against terrorist financing.
If an individual entrepreneur nevertheless decides to use a personal card, then it should be separated from other transactions not related to commerce and limited to small transactions. It would be a good idea to agree on this option with the bank.
An individual entrepreneur has the right to transfer money to an individual’s card from a current account for personal needs. A reverse transaction is also allowed if there are not enough funds for the transfer. However, when receiving income to a current card account, there are risks of blocking it due to violation of banking rules and the accrual of income tax on social benefits. To conduct business safely, it is recommended to use a current account.
State provision for the poor in the country applies to all citizens. But many are concerned about the question of whether an individual entrepreneur can be low-income in Russia (individual entrepreneur) in 2019.
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Indeed, in the case of this type of work activity, a large number of features and nuances arise in different areas. And it is legislatively difficult to establish options for the development of events with the registration of state benefits.
Basics
Entrepreneurial activity in Russia is a way of working for oneself and receiving direct profit from one’s labor. In this case, the employee does not share the income with other persons, intermediaries, but receives all the funds himself.
In such conditions, the performance and motivation of a person’s actions increases. Plus, his financial situation is higher than in the case of hired employment. But this version of work also has its own characteristics.
Due to low education in the business field, a person may have problems selling his goods and services. Therefore, there are risks of bankruptcy or the family being in need.
Important Concepts
Consideration of this kind of topic requires familiarization with a number of terms and provisions:
| Concept | Designation |
| Poor | Citizens who have official state confirmation of low per capita income. In this case, this norm is compared with the living wage established in the region. |
| Benefit | State benefit, which is non-cash and acts as a discount on the main set of social goods and services for needy categories of citizens |
| IP | An individual entrepreneur is a person who carries out business activities on the territory of Russia and this is his official source of income. A citizen does not formalize legal status, but remains an individual |
| Set of social services | A certain list of government benefits that are provided to needy citizens in the order of assigning them the necessary status. The set should include those services and goods that a citizen needs for life in the first place |
Who can receive this status
The poor make up about 15% of Russia's population in 2019. These are official statistics for all regions of the country.Although to obtain such social status it is necessary to meet a number of requirements. The main factor in assigning the status of needy is family income.
The calculation is carried out based on several data in the following order:
Only a family or individual living separately can receive assistance as part of the support of the poor. An individual family member is not recognized as needy - only within the framework of a complete family formation.
What the law says
The legislative sphere has several points in terms of providing assistance to individual entrepreneurs. In this area, it is worth determining what income is taken into account when calculating the possibility of obtaining low-income status.
Similar provisions are found in Federal Law No. 44-FZ “On the procedure for recording income and calculating the average per capita income of a family and the income of a citizen living alone for recognizing them as low-income and providing them with state social assistance.”
This regulatory document includes all the features for calculating the income of a citizen and family. Special attention should be paid to Article 5.
It talks about what income is taken into account. Moreover, the list even includes natural types of goods that are converted into monetary equivalent.
The provisions of this article of the Federal Law work in conjunction with Article 40 of the Tax Code of the Russian Federation. There is also a separate list of income that is included in the calculations.
This is the Decree of the Government of the Russian Federation No. 512 “On the list of types of income taken into account when calculating the average per capita family income and the income of a citizen living alone for the provision of state social assistance to them.” Within the framework of this document, a list of income is compiled.
Can an individual entrepreneur be recognized as low-income?
A citizen who is engaged in entrepreneurial activity can count on assistance from the state. The fact is that the law recognizes as income those funds that an individual receives from any work activity.
For accounting purposes, both money received as a result of hired labor and through entrepreneurial activities are accepted.
To determine the status of needy, it makes no difference where a person received his provision. Therefore, an individual entrepreneur can safely submit documents for registration of the appropriate status. But before that, the reasons for this operation must be determined.The procedure for obtaining status in need in Russia will be the same for all citizens. There are no separate requirements for individual entrepreneurs. Therefore, the scheme for processing and collecting documents is the same for everyone.
Photo: algorithm of action for recognizing a low-income family
Where to contact
To obtain low-income status, you can apply to several official government agencies. At the legislative level, a citizen is allowed to choose the most comfortable way to prepare documentation.
There are four options in total:
| Social protection body | Located at the place of registration or residence of the family |
| Multifunctional center | MFC, also located in accordance with the place of residence |
| Employer | All documentation can be transferred through him, as a representative of a working citizen |
| Internet resource State portal | Scanning of documents is required, but there will be no need to visit the government agency in person |
Registration is carried out through one of these control bodies. Although all documents are sent to the social security authority in any case. It is there that the decision is made regarding the provision of benefits or refusal to apply for benefits.
Required documents
Obtaining any state preferential status involves collecting documentation confirming the grounds for preferential treatment. In this case, the set of papers will be standard.
The following items need to be prepared:
What counts for status?
After all, not the full profit from running a business is taken into account. Russian legislation indicates that deductions should be made from the total amount.
In this case, the following items that make up the income of an individual entrepreneur fall under the minus sign:
What benefits are provided?
Benefits in this case are divided into several groups - financial and preferential discounts. The main set of assistance that an individual entrepreneur can receive within the federal and local budgets includes the following:
- subsidies for utility bills;
- allowances for collecting children for school and kindergarten, discounts on tuition fees at preschool educational institutions;
- monthly additional payments up to the subsistence level, one-time benefits;
- payments for children and the opportunity to receive free food and treatment.
If it is necessary to improve living conditions, it is possible to put on a waiting list, obtain a preferential mortgage, receive a subsidy for payment, or provide free housing.
Pitfalls
The main feature of paperwork in the case of individual entrepreneurs is the determination of the grounds for receiving benefits. In this case, it is necessary to take into account the rules for calculating the income indicator, taking into account deductions of taxes and other fees.
In the case of the minimum cost of living, problems may also arise. The answer to all questions in this area concerns the division of these indicators between different subjects of the Russian Federation.
In Moscow this level will be higher than in other regions of the country. This point must be taken into account in order to correctly compare and determine the possibility of receiving government assistance.
It is also possible to obtain exemptions for individual entrepreneurs within the framework of programs for the poor. But in theory and legal norms, this procedure looks much simpler.
Since the total income for an individual entrepreneur includes all payments received, only with the exception of taxes. Money invested in the business also counts.
And this can increase the amount of profit, which reduces the chances of receiving preferential status - due to high income levels.
Video: mechanism for recognizing citizens as poor
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Can an individual entrepreneur open an LLC? This question interests many entrepreneurs. Limited liability companies provide services to the public and produce goods. They receive a profit for services provided and goods sold. How can you become a member? For entrepreneurs looking for information about whether an individual entrepreneur can open an LLC, the legislation clearly defines the conditions for creating such an enterprise.
What distinguishes an individual entrepreneur from an LLC?
Individual entrepreneurship and limited liability companies have legal forms of activity. You can register them yourself. An individual entrepreneur has the opportunity to open an LLC only taking into account this legislation.
An LLC is registered as a legal entity or individual; it can be sold or transferred to other persons. An individual entrepreneur is an entrepreneur with the status of an individual; upon termination of his activities, he must undergo the procedure of deregistration with the tax service.
The number of individual entrepreneurs and LLCs is approximately the same according to statistics. Individual entrepreneurs have opportunities for tax benefits. There are also a number of advantages over large enterprises.
To find out how an individual entrepreneur can open an LLC, you should know about the capabilities of these structures. An individual entrepreneur is considered a private person and can make a profit only after registration. In his business he operates according to the following principles:
- the sale of goods and provision of services are aimed at generating income;
- the right to enter into agreements for the provision of services and goods with third parties;
- submit reports to the tax authorities on income in order to pay taxes and make the necessary payments;
- have the right to open bank accounts to conduct payments;
- the right to independently choose taxation;
- deregistration of individual entrepreneurs at any time.
These are the principles of IP operation.
A member of a limited liability company is an individual or legal entity. There are several of them, but no more than 50 shareholders. The founders bear responsibility taking into account their share investments. The founders have the following rights:
- direct participation in management;
- access to documents and ledgers;
- participation in the discussion of profit sharing.
Return to contents
Can an individual entrepreneur open an LLC?
Any entrepreneur with the status of an individual can establish a limited liability company. An entrepreneur must be able to deposit funds to start operations. But is it possible to open an individual entrepreneur and an LLC at the same time?
The legislation provides for the norms for the establishment of an LLC by an individual, that is, an individual entrepreneur.
But by becoming its shareholder, businessmen lose some of their opportunities. It is established by law that conducting double business is unacceptable. Profits from one enterprise cannot be transferred to the income of another. This means that profit received as a legal entity cannot be attributed to income received as an individual entrepreneur.
The individual entrepreneur will become a participant in this association only in the status of an individual without reference to his individual activities. The status of an individual entrepreneur for a member of an association should not affect the payment of taxes and contributions.
There are no sections in the registration application in which information about the individual entrepreneur is recorded. You can try to have the application notarized. But this is quite difficult to do. In addition, if you were able to register, then the status of an individual will not change to a legal entity.
In any case, an individual entrepreneur is considered an individual, even if he is registered as the founder of a company. The Civil Code assumes that an individual entrepreneur, when opening a given enterprise, has rights only as an individual. If an individual entrepreneur and a member of the company are one person, then the individual entrepreneur should be aware that income is not summed up, and taxes are paid separately.