We are back with the much-anticipated Part 2 of our tax-savings strategies! In case you missed it, you can find Part 1 on our blog.As a quick recap: You, as a taxpayer, can significantly reduce your tax burden simply by having an accountant who knows the ins and outs of tax law. This applies whether you are a sole proprietor or own a company. Many costs that you incur for your business can be tax deductible but it is best to consult with a professional to ensure that you are not unintentionally committing tax fraud.
Last month we focused on the importance of:
- Keeping detailed records of business transactions,
- Understanding tax deductible expenses and,
- How to leverage tax incentives on the last post.
Let’s continue with five more tax-saving strategies:
1. Hire a qualified family member
If a family member has a set of skills that would benefit your business, consider hiring them as a full-time or part-time employee. Hiring a family member who is part of your household can provide immediate tax and day-to-day benefits. The salary you pay to a family member for work performed in your business, can be a tax-deductible business expense.
Each taxpayer in South Africa has a tax-free threshold (R95,750 for the 2024 tax year if you are under 65), which is the amount of income they can earn without having to pay tax. By hiring a family member, you can use their tax-free threshold to reduce the overall tax liability of your household.
It is important to note though that this will only work in instances where the family member actually contributes to the running and growth of your business with their knowledge, skills and work experience. Hiring someone purely for the sake of hiring them will not aid you in reaching your business goals and could actually have an adverse effect by placing your business at risk in more than one way
2. Take advantage of a retirement plan for your employees
Setting up a retirement plan for your employees can offer significant tax benefits. Contributions to retirement plans such as provident funds, pension funds, and retirement annuities are generally tax-deductible. This not only allows you to offer a competitive compensation package when attracting talent, it also reduces your current tax bill.
If you contribute to a retirement annuity on behalf of your staff, those contributions are seen as employee expenses and can be deducted from your taxable income, thereby lowering your tax liability. Additionally, offering retirement plans to your employees will enhance their job satisfaction and loyalty, contributing to your business’s long-term stability and growth.
3. Leverage technology
Utilising technology can really help to streamline your financial management and also improve accuracy. Accounting software like Sage and Xero can automate many tasks, making it easier to keep track of your finances and making sure that you’re capturing all possible deductions. These tools can generate reports that provide valuable insights into your business’s financial health.
Sage and Xero offer features such as automated invoicing, expense tracking, and financial reporting. By automating routine tasks, you can focus more on strategic planning and business growth, while ensuring compliance with tax regulations.
4. Plan for provisional taxes
As a provisional taxpayer, you need to make provisional tax payments twice a year, with a third additional payment allowable if necessary.
“Any person who receives income (or to whom income accrues) other than remuneration, is a provisional taxpayer. – SARS”
Provisional tax is essentially paying your tax in advance based on your estimated taxable income. To avoid penalties and interest, it’s crucial to accurately estimate your taxes and set aside funds throughout the year to cover these payments.
Example:
If your business has a seasonal revenue pattern, you need to ensure that you set aside sufficient funds during peak months to cover your provisional tax payments. Accurate financial forecasting and regular reviews of your income and expenses can help you make more precise tax estimates, thereby avoiding unexpected tax liabilities and ensuring smooth cash flow management.
5. Seek professional advice
Hiring a tax professional can save you time and money. These experts stay up-to-date with the latest tax laws and can identify deductions and credits you might miss. They can also help you develop a tax strategy tailored to your business, ensuring you comply with all tax regulations while maximising your savings.
Implementing these tax-saving strategies can help you keep more of your hard-earned money in your business. Remember, the key to successful tax planning is to stay informed, keep detailed records, and seek professional advice when needed. By taking proactive steps, you can reduce your tax burden and use those savings to grow your business. If you need assistance, consider reaching out to us at aXia Consulting. We can guide you through the process and ensure you’re taking full advantage of all available tax benefits as a taxpayer.
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