Be Tax Savvy not a Tax Thief

There are so many aspects of a small business (SME) that an owner needs to be aware and taxes is an area that can be quite challenging if the business owner does not have adequate knowledge. Consulting a tax professional and the SME Corporate societies are the best steps any small business owner can take, but there are simple tips that business owners can keep in mind to help their business to become as financially successful as possible. 

Decide what form of business to use

Sole-proprietor, Corporation,OPC,  LLP, or Partnership. Most small businesses fail to keep their business form simple. Often lawyers and CAs will advise to incorporate, but this is usually an overkill for most small companies and requires extra costs for bookkeeping and filing fees. Liability seems to be the big issue, but small business owners can either buy errors and omissions insurance or buy an umbrella policy to help if they are personally sued and proper insurance policies for keyman, stock and other assets. Most small businesses who incorporate and set up an Private corporation usually do it because they are so cash strapped and have no money to pay employees and employment taxes, so they wind up with no employees on the books. As for flow through Public corporations, the IFRS and IND AS are closing the gap on this avoidance.

Keep personal and business expenses separate

Too many small businesses try to write-off their personal expenses against their business income, which can get you in a lot of trouble with the ITA. When writing off expenses, make sure it is an ordinary and necessary expense needed for your business, otherwise you may have a lot of explaining to do.

 Keep good records

Business owners can’t pay estimated taxes at the end of each quarter without a P&L statement. Also, bad records cost the business money if owners overlook the good deductible business expenses. It is also recommended small business owners keep tax records for at least three years in case a problem arises. Be prepared even if not mandatory by 44AA by Income Tax Act

Make business tax payments on time

Avoid the penalties and interest for not paying business taxes on time. It’ll save you a headache down the line if you’ve kept up with your payments from the start.

Don’t improvise small loans

It’s important, as an owner, to know where to draw the line when handling money. Desperate times can sometimes call for desperate measures, but when your business and your employee’s livelihoods are on the line, it is best to go about things correctly. When strapped for cash, find a loan through a bank and do not consider taking the taxes withheld from you employees as a shortcut to extra money. If you cannot work around your financial shortcomings, talk with your accountant or hire one right away.

Author: An Entrepreneur, Blogger, Auditor, CA Finalist, tax and business consultant having experience of years in managing business and consultancy with various MNCs . Author could be reached at  >>Contact<<