Managing a successful small business involves several challenges, but one of the most difficult is cutting costs and saving as much as possible, especially during lean times and challenging economic conditions. However, one very simple method of saving is by managing the company’s taxes effectively. Knowing the tax laws and how to benefit from them can help businesses save time and money.
Cutting costs and saving money are essential in every business but are not easy to achieve. However, one definite way to save is to get clued up on the tax deductibles permitted by South Africa’s tax-collecting authority, SARS. According to SARS, tax-deductible business expenses are “expenses incurred in the operation of a business”.
In other words, any purchase you make for the purpose of running your business counts as a business expense, although certain limitations do apply in some instances. You can consult with SARS or an accountant to determine which tax deductibles are applicable to your business.
In South Africa, whether you’re registered as a sole proprietor or a company, you are entitled to claim legitimate business expenses as tax deductions. However, if you run your business as a sole proprietor – that is, your business is not a separate legal entity from you – the income you make from trading must be reported as part of your personal income tax return. There is also no ‘minimum threshold’ to meet before you are required to file taxes.
If you are registered as a company or sole proprietor in South Africa, you can choose to pay standard small business income tax rates or you can elect to pay turnover tax. Turnover tax is a simplified tax rate aimed at reducing administration for small businesses with an annual turnover of less than R1 million. The turnover tax system calculates tax on a sliding scale based on the turnover of the business.
If your small business is registered as a company and it meets certain qualifying requirements, you can register as a small business corporation (SBC). SBCs can access extra tax incentives, including a reduced tax rate.
Small business tax does not need to be paid by any business that earns below the tax threshold. As an SBC, you won’t have to pay income tax if you make a profit of less than R91 250 per year. If you qualify as a micro business for turnover tax, you will be exempt from paying tax if your turnover is less than R335 000 per year.
Besides getting lower tax rates, small business tax benefits allow SBCs to depreciate their assets at a faster rate than other businesses. This reduces your taxable profit, in turn reducing your tax. SBC shareholders who pay the maximum small business tax rate on their income can access a tax benefit through a combination of salary and dividends.
Another important point is to always ensure you keep up with filing and payment deadlines to avoid admin fees, as well as interest and penalties, for late filing. These fees are charged for each month you’re late, so they can add up. Above all, it’s critical to keep your bookkeeping in order. You always want to make sure that you have 100% accurate information on your finances.
Cloud accounting offers many advantages, for example, increased convenience and productivity. Entrepreneurs are not only able to access their business’s finances at any time but are able to eliminate repetitive tasks like data entry and calculating tax, revenue and cash flow forecasts, among other tasks. Using cloud accounting software can also help you reduce your business’ monthly expenses as it’s paperless – you save costs on printing and paper.
Cloud accounting software helps business owners keep a finger on the pulse of their finances. There are standard tasks that all accounting software can help you with, including recording transactions, sending invoices, storing receipts, and managing cash flow; and tax management features make the filing of tax easier, which means more savings for your business.
With online accounting software, it’s easy to track your business’ expenses and income, as well as your tax commitments, throughout the year, from anywhere on any device. However, tax can get complicated, so if you’re not adept at navigating its intricacies, it’s best to consult an accountant.
Regardless of your business structure, tracking expenses regularly is key to managing your finances effectively, maintaining positive cash flow and ensuring accurate record-keeping. Managing your taxes can help you achieve significant cost savings if done correctly. For more information on tax-deductibles, SARS provides a comprehensive guide on its website, www.sars.gov.za
