Most entrepreneurs starting a new business are concerned about the tax requirements of their new venture and the manner in which they should approach the matter. Corporate tax planning is essential for all business owners for adhering to compliance regulations as well as saving money in the process. A large tax bill or a legal issue arising because of ignorance can be detrimental for a new enterprise. Many new owners come to know about their tax obligations only when they get the bill. New entrepreneurs are unable to devote sufficient time to study the matter as they are occupied with establishing their organization in the business domain. Moreover, it will be difficult for an individual to understand the intricacies of various aspects of tax strategy like direct tax planning, employment tax, compliance requirements etc. Some valuable suggestions are being presented which will be helpful for startup owners looking for assistance in the matter.
1. Choose The Business Structure Carefully
Tax planning for an enterprise begins even before it starts running its operations. Business owners must be careful while choosing a legal type for the new entity. There are various ways in which a startup can be structured or categorized. Formation of a company is governed by legal regulations which make it necessary that a professional be hired for the purpose. An expert will give valuable advice about the most appropriate structure for a new venture. Each legal type is subjected to different tax rules meaning not only do the rates vary but also the filing requirements are different. Picking the most appropriate business structure is vital as it can have a great impact on the liabilities of a business.
2. Learn About The Tax Liabilities
Owners must know about the tax liabilities that they need to fulfill. In addition to income tax, an organization may be required to pay sales tax, excise, employment tax etc. The transactions carried out by the entity will be taxable and they form a large part of the overall liabilities. In addition to this, the profits and losses of the company are subject to levies. These requirements also depend upon the legal structure of the entity. For instance, owners of a sole proprietorship will have to pay self-employment tax. These levies are nothing but the taxes that an employer pays for hiring workers. As a sole proprietor is employing himself/ herself, the charges have to be paid by him/her.
3. Save Money Every Month For Tax Payments
A common problem faced by most startups is depleted cash reserves after payment of taxes. This hinders them in running the business or taking steps to expand their operations during this period. Some enterprises face a slightly different issue with not enough money available during the period as most of it was exhausted in meeting other business requirements. Experts advise that entrepreneurs must save some money every month which can then be used to pay taxes. It is essential for this plan to work that the owner has a fair idea about the final amount that is needed to be paid for a financial year. They must engage professionals who possess knowledge about taxation and can help startups calculate the annual taxes.
4. Keep A Tab On The Projections
Even businesses which are making regular savings for meeting their tax requirements can fall short of the exact amount at the end of the year. This happens because the projection for the year was not accurate. This can happen because of various reasons such as surplus cash reserves because of increased profits. Most startups hire agencies for specific situations like identifying tax liabilities or for assistance during filing returns. They make the mistake of not engaging them for comprehensive corporate tax planning. Doing so will help them in getting accurate tax projections as the professionals will keep track of their financial condition throughout the year and make adjustments if required. This will keep the organization aware of the approximate amount that must be paid and it will plan its monthly savings accordingly.
5. Maintain Records Diligently
One of the most valuable suggestions that all experts give is that business organizations must keep proper financial records right from the beginning. They must hire competent professionals to maintain their accounts and keep track of their income. Recording the details of all transactions such as sales and purchases besides payments to vendors, employee compensation etc. will be helpful in meeting compliance requirements easily. It will also be helpful in preparing accurate tax returns which can be filed on time. Diligent record-keeping provides valuable input to advisers who can use the information to calculate the estimated payable taxes. Startup owners must also ensure that their personal finances and business matters are dealt with separately.
6. Hire A Competent Professional Agency
Tax laws can be difficult to understand even for seasoned entrepreneurs and small business owners must engage a professional firm to get proper guidance on the matter. Getting an expert to assist will help the owner to focus his energies towards running the business more efficiently and expanding its operations. There are numerous tax firms in India manned by accountants, lawyers and other professionals who have knowledge about the latest laws as well as the best practices. This makes them ideally positioned to provide assistance to business owners which will be helpful in reducing the tax liabilities and adhering to compliance regulations.
Adopting a dynamic approach towards corporate tax planning will help startup owners in being prepared for meeting the requirements. They can manage their finances in a better manner and find new ways to expand their business.