Be it a large business or small, tax saving is on top of the mind for everyone! Every business owner is searching for ways to minimize their tax outgo via various exemptions and deductions. In this blog, we shall discuss some of the best tips concerning tax planning for businesses. Stay with and read on!
Before we discuss the useful tips on tax planning, let us delve into the meaning of tax planning, its different types, and its main objectives.
What is tax planning?
Tax planning can be referred to as the analysis of your business’s financial state from a tax efficiency point. Some important factors revolving around tax planning include business size, business expenditures, the timing of business income, and several others.
Given the frequent economic uncertainty across the globe, it makes sense to invest efforts in effective tax planning to achieve high returns. Let us look at some of the key reasons to spend time on tax planning:
- Reduces tax liability
Tax liability could be described as the total amount of money that your business needs to pay to the tax authorities. Now, as a taxpayer, it is obvious that you want to alleviate your taxes and save some capital for the future. Thankfully, the government offers some investment schemes that can help reduce tax liability.
- Avoids litigation possibilities
Tax codes are complex and therefore require thorough examination. You should have well-thought tax planning in place to ensure adherence to crucial tax compliances. Consider seeking the assistance of a financial advisor who can handle tax planning activities effectively and minimize litigation.
- Enables economic stability
When you plan and pay legally due taxes, you take a step towards the betterment of the country and making it a healthier economy.
- Facilitates business productivity
During the tax planning process, it becomes essential to set up your financial objectives and decide your investments. And when you choose the right tax-saving instruments, it leads to better growth and productivity for your business. You need to channelise funds from taxable sources to various income-generating investment plans.
Types of tax planning
- Permissive tax planning
If we talk about tax planning in India, there are several tax provisions such as deductions, exemptions, contributions, and incentives. Permissive tax planning involves planning under these specific provisions.
- Purposive tax planning
This type of tax planning involves leveraging tax-saver instruments. It can help you maximize your benefits from investments.
- Long-range tax planning
In this type of tax planning, you need to strategize on tax planning at the very start of the year.
- Short-range tax planning
In this kind of tax planning, strategies are formed and implemented at the end of the year in order to achieve specific financial goals or objectives.
5 compelling tips for tax planning
- Record your business expenses
When you record your business expenses, you easily get a fair idea of how you are spending your money and how you can allocate your business operational costs better. With expense records, it also becomes easier to keep a track of all your profits. Keeping a tab on business-related expenses saves you from paying more tax on your profits.
- Prioritize digital transactions
Businesses cannot claim deductions on daily cash payments exceeding 10,000 as per the rules of the Income Tax Act. If you make cash transactions exceeding this amount, it will only increase your tax liability. Here is exactly where digital transactions come to the rescue. You can make payments via digital modes like cheque, UPI, NEFT/RTGS, and others.
- Watch out for depreciation costs
If you’re a business in the manufacturing industry, you can easily claim 20% additional depreciation on new equipment and machinery. This is separate from the regular 15% depreciation that you can claim.
- Stay ahead of time
It is always wise to avoid last-minute tax calculations. Invest some time from the start on making crucial decisions like choosing the right insurance products and distributing business investments over the year. This will save you from extra burden during the last months of handling tax processes.
- Hire a tax professional
Tax processes are often complicated and as a business, you just can’t afford to make tax mistakes. Here is where professional tax services come into play. Being experts in the field, tax professionals can strategically plan your tax preparation and free you from all the stress involved in managing tax processes.
Common mistakes to avoid during tax planning
- Avoid delaying tax planning till the last quarter of the year. The last-minute rush prevents you from analyzing your business transactions and investments thoroughly and might lead you into making tax errors.
- Some taxpayers link tax planning only to tax savings. This should not be your only approach. You should definitely take other factors into consideration. As a business, it is essential to align your financial objectives with your tax planning. You should wisely invest as per your risk appetite.
- Many businesses commit the mistake of mixing up professional and personal expenses. You should certainly refrain from doing this. Remember that only business-related expenses are deductible from your business income.
The Diligen promise
Diligen is committed to providing state-of-the-art tax planning services to businesses across different verticals. Trust us with the management of your finances to achieve your financial goals the right way. Our expert team can take care of corporate taxation, individual taxation, SEZ operations, shareholder distribution, and much more.
Why choose us?
- Bid goodbye to legal issues: Our team is well-versed with the relevant laws associated with tax processes. We can provide you with top-notch professional assistance to meet all crucial tax compliances and avoid legal problems.
- Ensure 100% accurate tax filing: We take pride in having an expert team with over 25 years of expertise in the domain. Show faith in us when we say that we can handle all your tax issues with complete accuracy and reduce cash outflows.
- Get enhanced business productivity: The best part of partnering with us is that we can help you make smart tax-saving decisions thereby enabling your team to invest all its attention in core business activities.
Collaborate with Diligen and let us handle all your tax complexities while you focus better on business growth and expansion. Connect with us without further delay.