We all know that tax planning for individuals is the financial analysis of a current financial situation and planning finances in the most optimised manner to bring about tax efficiency. It is also a legal way of reducing tax liabilities.
Hence for small businesses, it is tax planning on a corporate level as a registered company. There are a few ways to do this and that includes taking deductions on office expenses, health insurance of employees, business transport and childcare etc. Through the various deductions, a company can significantly reduce its tax burden. Still not convinced?
Here are 3 great benefits of tax planning for small business owners in Singapore:
1. Saves time and minimises errors
It is critical to have a tax strategy in place especially from the beginning of the year because it would help save a lot of time during the year, more so when it comes to meeting the annual tax deadlines.
The most common challenge that small business owners face is due to the many hats they wear, they find it difficult to commit to long term financial strategies as they are usually busy if not overwhelmed with managing the day to day business operations.
Rather than the last minute preparations thrown in to quickly organise your finances in order to figure out the assets and liabilities, it is advisable to have a plan beforehand to help save time. This will be instrumental in helping you to save significant amounts of time when it comes to committing unnecessary errors during the annual tax filing.
Some common errors include making large purchases at an inappropriate timing, spending more than usual to potentially increase deductions and just not understanding taxes in general.
When you have a solid tax strategy, you can estimate and anticipate the current and future liabilities so you can know what you owe ahead of time. This minimises errors in filing and significantly reduces your chances of being audited.
2. Reduce overall tax liability
The ultimate end goal of tax planning is to reduce overall tax liability which means that you will not pay a cent more than what is truly owing. The excess savings can go towards reinvesting into your business for future expansion.
When tax planning is implemented, many small business owners are shocked to find out about all of the tax deductions, reliefs and other provisions available that they never knew existed. It is like a whole new world to them!
They include charity contributions, reporting investment losses, etc. That is the core purpose of tax planning, helping you to take advantage and maximise every deduction and relief initiative available, from day one.
3. Allow for future growth
Having a solid tax strategy helps you make informed financial decisions in the long run. When you have the latest financial data at your fingertips, you will be well-equipped to make better financial projections and forecasts, strategic business investments and more.
Tax planning also helps you understand how your business strategies and operations affect your tax obligations. They are inter-related to your business decisions. Akin to financial planning, it is inter-related to many areas of your life. How much is being spent, how much is being owed, how much is being saved and how much is being invested. Have you made enough to bring your family on a luxury vacation this year?
Eventually, the main purpose of tax planning is to help you save more monies instead of letting it go to waste in paying taxes so that the monies saved can go into hiring more employees, making purchases like upgrading your systems or equipment for future expansion.
In summary, tax planning is critically important to small businesses because business owners need to ensure that resources are optimally utilised for sustainable growth and not running into unnecessary additional liabilities.