By Bernard BEMPONG
A strategic approach to tax planning is fundamental for a business aiming at substantial returns on its investments. Tax planning involves controlling or minimizing tax liabilities while remaining compliant with the relevant legislation.
It involves analyzing a business’s financial situation, income, expenses and other relevant factors to formulate a strategy to control tax liabilities to the revenue agency of the state. In that light, it should be noted that while tax avoidance is permissible by law, tax evasion on the other hand is an offence. This terse article further looks at some of the ways a business can explore to minimize its tax liabilities.
Selecting a business structure
From the word go, the business structure an individual chooses to operate determines some of its tax obligations or liabilities. A business can either be registered as a sole proprietor, partnership, private or public limited liability. Apart from its incorporation or legal status, factors such as the size and type of business, industry and the overall economic condition have their implications on tax liabilities.
It is therefore, worth saying that tax obligation strategy and its efficiency is influenced by business choice. The challenge is that many individuals or entrepreneurs hardly understand those tax dynamics on their line of business. Nonetheless, it is worthy to note that understanding those fundamentals are very important and can help an entrepreneur to develop a robust tax planning strategy in an overall scheme of minimizing (tax) liabilities.
Consulting tax professionals
Tax planning requires expert advice to ensure that individuals and businesses are aware of their tax obligations. A tax professional has an in-depth knowledge and understanding of relevant tax laws and regulations and their compliance modalities. An experienced professional understands tax codes and can offer sound advice to individuals and businesses to choose the most tax-efficient structure.
Their services are important to help businesses to implement tax-saving strategies they may not be aware of but necessary to optimize their tax planning efforts. In that regard, they can anticipate potential tax related challenges and provide tailored solutions. For instance, a tax professional can provide support in case of an audit or tax-related inquiries.
In effect, their advice will ensure that businesses are able to make informed tax decisions that can minimize their liabilities and invariably maximize their returns. The crux of the matter is that many businesses and individuals are reluctant to seek advice of professionals and often inundated with compliance bottlenecks and penalties. To overcome those challenges will require that they consult a reputable tax firm of professionals for advice and understand the full spectrum of tax-saving opportunities.
Stay informed about Tax Laws and Regulations
Laws and regulations are amended overtime. Thus, tax laws and regulation are dynamic and subject to those amendments over a period of their enactment. It is important to keep abreast with any amendment and their implications to facilitate effective tax planning. To understand the nuances of any amendment, one would also need to seek guidance from a tax professional. There could be changes or deductions in a tax rate and credit that will help a business owner to adapt their tax planning strategies for potential savings to maximize returns accordingly.
Keep Accurate Records
Accurate financial records provide reliable data for effective tax planning. Proper record-keeping ensures that an entrepreneur can claim all eligible deductions and credits that can reduce their taxable income. A claim for eligible deductions is at the backdrop of identifying all the related expenses from operational costs that can significantly minimize a business’s tax burden.
In today’s world of digitalization, a robust application or accounting software can help a business to streamline documentation of receipts, acknowledgment letters and other relevant certificates that can serve as evidence when claiming deductions on tax returns. In the same vein, periodic reconciliation of financial data will not only ease tax preparation but also provide a clear overview of financial health to inform decision-making.
Implementing tax-efficient investment strategies
Investments can have implications on overall tax liability. It is worth reiterating that consulting with a financial advisor can ensure investment decisions align with your business’s tax planning goals. That said, by incorporating tax-efficient investment strategies, a business is empowered to manage its potential tax burdens more effectively.
Depreciation & Capital gains
As a going concern, a business has assets it uses for its operations and activities. As a business invests in those assets, it maintains a register on them over their useful life. It is important to plan or appropriate depreciation on those assets as required by law. Hence, understanding depreciation rules is imperative to determine the write-off rates of those assets over their useful life.
Indeed different assets have varying depreciation rates or schedules, so a strategic planning can lead to substantial tax savings. By aligning your business’s asset acquisitions with the relevant depreciation rates will not only help to optimize a business’s tax benefits but also ensure efficient resource allocation and budgeting for future investments.
Conclusion
In closing, tax planning is a financial strategy and very necessary to sustain business operations and should not be narrowed down to only a number crunching or computation activity. It is, therefore, prudent for business owners to seek the guidance of a tax professional. A professional will not only help to ensure compliance but also advise on relevant strategies which will empower them to optimize their tax benefits. By executing effective tax planning strategies, small businesses can retain more of their hard-earned revenue even in the face general economic downturns.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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