Essential Small Business Tax Tips
During the tax season, small businesses seek ways to maximize tax credits and deductions and save money. A small business owner should keep a log of all the receipts, invoices, cash transactions and other expenses as they can help in reducing taxable income.
Following tips can help you pay taxes effectively:
Keep records and understand deductions
It is essential that you maintain all the records of your business transactions. The records are vital for claiming deductions and for audits. Verify whether your business is eligible for any exemptions. Enquire regarding updates in the Small Businesses Act about any new exemptions that you are entitled to.
Separate your business and personal expenses
Distinguish your bank accounts and credit cards for your business and personal use. This would bring transparency and give you a clear picture of your business’ performance. This would also help in maintaining records.
Estimate your tax payments beforehand
You need to proactively pay the estimated taxes on your anticipated annual business profits. Ensure you pay your estimated tax before time on a quarterly basis as per the scheduled due dates. A delayed tax payment leads to penalties and IT queries. Thus, it is better to instead take precautionary measures and pay the estimated tax well in advance.
Suppose your estimated profits are less than Rs.1 crore. Then, you would have to pay 30% on your total income. You could pay this in four quarters. You will also have to pay an additional 3% educational cess on tax calculated at 30%. If the profits of your company are more than Rs.1 crore then you will have to pay an additional 7% surcharge on the tax liability calculated at 30%.
Pre-allocate your funds for tax
It is always advisable to have a portion of your income reserved to pay the tax. Experts suggest having a separate tax account for this purpose. Every time you receive a payment, dedicate a portion of it to be deposited in your tax account. This would save you from the huge tax burden at the end of the financial year.
Consult a professional
A certified chartered accountant or tax professional could help you in more ways than one. They could advise you about the various deductions and exemptions eligible for you. They can lower your tax liabilities too. They would also find loopholes and tax breaks that you could otherwise miss. Alternatively, you can use a good accounting software that helps you track all your expenses.
To sum it up
There is no need to panic about your tax-related concerns. Simply know your estimated payments and set aside funds in a Tax account. Doing so, you don’t have to stress later. A professional can help you with the filing as well as tax deduction exemption options that you would have otherwise ignored.
You can also avail small business loan to meet your immediate tax debts and other expenses. These loans are very handy because the interest rates are very competitive. You also get flexible repayment options so that there is no strain on your finances. You can avail these loans from various Non-banking finance companies (NBFCs) like Bajaj Finserv who offer online services as well.