Five tips for cutting tax costs
The end of the tax year is approaching faster than a speeding bullet. As a business owner, you’re looking for ways to save costs, and taxes are a serious “grudge purchase”. Tax time is something few business owners look forward to, but five financial accounting tips can help you ensure you’ve kept your tax costs as low as they can go.
In the world of financial accounting, this sounds fairly counterintuitive. But there are times in which it’s prudent to make a purchase before the end of your tax year in order to take advantage of tax breaks. Certain office equipment – things such as photocopy machines and telephone systems – qualify for a tax rebate. So if you’ve been spending 20 minutes un-jamming your ancient copy machine every day, or if you’ve been struggling with ridiculously slow internet speeds when you actually need ADSL, consider taking the plunge and spending the cash before the financial year is up. The tax return you’ll receive in a few months’ time will make that purchase a little sweeter.
2. Only gear up when you’re official
Notwithstanding the point above, if you’re just starting up your business, hold off on making any purchases until after the entire CIPC registration process is complete. While it might be tempting to get kitted out straight away, financial accounting wisdom says it’s better to delay this until all your documents are in order. If you don’t, you could struggle to have the purchases recognized as business expenses, and therefore have them tax deductible.
3. Get smart about B-BBEE donations
Many businesses in South Africa are doing all they can to keep their Broad-Based Black Economic Empowerment (B-BBEE) scores high. Five points of the scorecard are allocated to Socio-economic Development (SED). In order to earn the points, your company needs to donate a percentage of its net profit after tax to qualifying beneficiaries. If you keep your financial accounting requirements in the back of your mind while you do this, you can claim back on tax for these donations as well. Request a Section 18A certificate from the charitable organisations to which you donate, claim back for charitable donations, and retain them as proof for when tax time comes around.
4. Pay your employees more
Another suggestion that might sound like it will achieve the opposite to saving cash, but if you use some financial accounting savvy, doing this can work in your favour. Business website chron.com says: “Increase compensation for a few key employees in exchange for increased production targets. Since employee compensation (including salary and benefits) is tax-deductible, the compensation increase could more than pay for itself if increased production targets are met.”
5. Make sure you can stand up to an audit
The South African Revenue Service has various reasons for requesting an audit once you’ve submitted your tax returns, and you never know when it’s going to be you. Be aware of what claims could increase your chances of an audit, and make sure you have all the paperwork at hand to prove it. For example, don’t claim for vehicle / travel expenses unless you have kept a detailed travel log meeting all of SARS latest requirements throughout the tax year. Guesstimating what you spent in retrospect, submitting your claim and hoping that SARS won’t ask for more documentation will put your financial accounting processes under a lot of pressure when the inevitable takes place.
By making purchases timeously, bearing tax implications in mind when meeting B-BBBEE requirements, paying employees more for reaching output targets, and making sure your financial accounting tracks costs meticulously, you can feel confident that your company is not overpaying in taxes. If you could do with some help getting these processes right, contact The Finance Team. One of our financial experts can assistance your company in the way, and for the period of time, that you need them.