Tax-Saving: The early days of entrepreneurship will require several organizational tasks at once. Failing to handle it properly can escalate the issues and makes it difficult for businesses to function smoothly. As an entrepreneur, you can schedule the deliverables, set up expenses, and organize execution tasks. In such an initial time, thinking about taxes is very taxing, whether it is GST registration or the filing of ITR. As a fundamental compliance measure, it is also one of the always-present activities that you cannot completely disregard.
Starting a new business means cutting corners to increase profitability, and, in such cases, the money saved is money earned. And one of the easiest ways to do that is to prepare your business taxes just as you make other corporate operations for a holistic approach. This will offer an incentive to offset potential losses while taking advantage of potential tax benefits.
If you are a startup and looking to plan your taxes for the financial year, use five tax-saving tips.
#1 Documenting Deductions
In the sense of operations, startups can claim a deduction for their “usual and required” expenses.
This spending includes;
- Job travel
- Home office rent and services (only pro-rated portions)
- The field books or magazines
- Business training programs supplies and other such expenditures.
The only way to save it is that any expenditures you subtract require receipts or documentation. Download all the receipts because you collect them for the best filing practices. So, when paying your taxes, prefer having someone who can scan the receipts electronically and organizes them automatically for easy filling.
#2 Your Business Structure Matters
When starting the new venture, it is best to understand the corporate structure as each form will have different taxes. Companies are required to draw tax, so you can seek to mitigate taxes as a founding organization. For example, sole proprietorship taxes vary from 5 to 30% above the basic exemption cap. The tax burden for partnership companies and businesses with LLP registration is flat in such a way that every penny received is taxed to 30. The corporate tax burden is 22 percent subject to other conditions, which are often purchased by new production firms at 15 percent.
Tax authorities view business partnerships and LLP in the same way. Many entrepreneurs opt for LLP over private companies due to the Dividend Distribution Tax (DDT). This is because DDT is taxed on an enterprise’s income distribution, which applies at a brutal rate of 15%.
#3. Know your Tax Rights
The fluctuations in government tax policy may expose your company to various tax vulnerabilities. It is also best to be aware of your right to be a taxpayer and its advantages. E.g., for the first three years, A100% tax exemption on income gained is available. The only exception is the alternative minimum tax of 18.5%. You have the right to claim an exception if your startup is listed under the Startup India scheme.
Other potential exemptions, such as the capital gain tax, the SEBI funds, and the rejection of the angel investment levy, are available. As a founder, you need to understand these and use them to promote your company.
#4. Timely Filing
Businesses are required to file their income tax return in compliance with the IT department’s guidelines. This is to ensure receiving a few of the crucial tax benefits. Do note that it takes around eight years for a company to lose all the powers of tax benefits offered by the government. You will also pay the salary you receive for the coming years if it is not calculated in the current financial year. This is possible if the returns are filed before the due dates.
Keep a close look at any amendments in the existing tax regulations to ensure keeping your business compliant. This means tracking tax laws and tax write-offs in-depth, enabling longer and short-term savings.
#5. Hiring Tax Professionals
You can always opt for hiring business service professionals who can deal better with corporate taxation while unlocking a plethora of benefits for your businesses. It offers the company’s ideal scenario because you are free from worries surrounding the taxation, and you don’t need to hire anyone in-house on a full-time basis. Instead, leave the worries of filing income tax returns to professionals who also work to ensure that your company meets all tax requirements and enables your company’s smooth operation. Your experience will also be valuable for you to make critical business decisions.
Often, all the business needs sound guidance from tax advisors on fiscal planning and complete tax enforcement monitoring. It is also an ideal way to train the business for unexpected circumstances like COVID-19.
It is obvious for new companies not to think of taxes, and they are often reluctant to pay it as they believe that they are getting the government benefits. This is because taxation is complicated and time-consuming while divided into many sub-branches. Reinventing the wheel is also not an ideal choice since you don’t want to hire specialists for something that is not in your core offerings.
Therefore, it is recommended to either get your taxes outsourced to an external team of tax experts or gain the full knowledge required. Having an external team of tax professionals advising you ensures that your business stays compliant and leverages tax benefits – but it also helps reduce your operational responsibilities as a business.