20 October 2017

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Year-end Tips for Small Business

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For small business owners, taxation is an extremely important aspect for their business. In this article I have emphasized on few tips that are must to know while looking at filing taxes. Here are the following tips:

1. Update Your Accounting: It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.

Typically people rely on a standard set of year-end tax planning techniques such as deferring income to the following year and accelerating deductions into the current year. Examples of these types of tactics are holding off on selling investments with gains until later or paying tax deductions such as property tax or charity donations. There is a lot more which can be done well in advance, as we are in last quarter of Financial year 2010-11, It’s time to do little planning about tax, income and expenses.

2. Income Deferral: Any payments your company can receive during the first week of April as opposed to March cut your tax bill. Every penny deferred until April 2010 will not owe taxes in this year. Any deferral strategy will depend on your profit and losses for the year and business legal structure (LLC, partnership, corporation, etc.)

Depending on your income tax rates in the foreseeable New Year, deferral of income can make the best sense for many sole proprietors, partnerships, LLC's, and corporations. Ensure your cash flow can handle the deferred income.

Don't forget to push any early 2011 charitable donations back to 2010. Make sure you get a receipt for the tax deduction.

3. Account for the Expenses: Expenses pertaining to the financial year should be booked, consider the following items for expenses:

  • Book/Pay Bills: Book/Pay your bills for the financial year in areas such as; cell services, subscriptions, rent, insurance, and utilities.
  • Fixed Assets Purchases: If you will be buying new Assets in April ’11, consider purchasing in March’11 to get benefit on depreciation. Consult with an accountant to examine your circumstance and company structure to maximize your deductions. In addition, your equipment will have to be in your office, "in use" by year-end.
  • Other Items: This category includes: travel bookings, equipment repairs, and maintenance. Pay tax deductible expenses as property tax etc.
  • Sell off stocks and other investments that have lost value so you can take the losses on your 2010-11 return.

4. Inventory Write-Offs: Depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your company with added deductions.

5. Computation of Advance tax: After planning and updating financial, if total income for the current year is likely to be chargeable to tax, advance tax liability is required to be calculated. When the estimated income tax to be paid is more than Rs.10, 000 then advance tax has to be paid.

The advance tax payable is the tax on the current income minus the tax deductible at source (TDS) or collectible out of any income included in the current income. Advance tax is payable in installments- four installments for companies and for non-company assesses- three installments.

All the companies, who are liable to pay the Advance Tax, in four installments during each financial year and the due date of each installment and the amount of such installment, shall be as specified in Table below:

Due date of installment

Amount payable

 

On or before the 15th June

 

Not less than 15% of such advance tax.

On or before the 15th September

Not less than 45% of such advance tax, as reduced by the amount, if any, paid in the earlier installment.

On or before the 15th December

Not less than 75% of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier installments.

On or before the 15th March

The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier installments.

All the non-company assesses, who are liable to pay the Advance Tax, in three installments during each financial year and the due date of each installment and the amount of such installment shall be as specified in Table II below:

Due date of installment

Amount payable

 

 

On or before the 15th September

 

Not less than 30% of such advance tax.

 

On or before the 15th December

Not less than 60% of such advance tax, as reduced by the amount, if any, paid in the earlier installment.

 

On or before the 15th March

The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier installments.

 

If the advance tax is not paid in time, then the assesses has to pay interest u/s 234c and If the tax payer does not make payment of advance tax voluntarily, the assessing officer can issue a notice at any time during the financial year, but not later than the last day of February asking him to pay the advance tax in specified installments. Such notice is ordinarily based on the assessed income of the tax payer for the latest year.

The best strategy for paying advance tax should be to pay a little extra for first 2 installments and then paying amount close to the total tax liability during the third/last installment. One should also try not to pay extra amount so as to avoid any hassles of refund as it is best to pay nominal interest amount later on.

These year-end tax tips will apply differently to each business owner's situation and accounting method. The cash method of accounting allows for deductions and income reported for the year they are paid or received. The accrual accounting method applies income and deductions in the year incurred. Take the time to review the best strategy with a professional advisor and make the most of the year-end tax planning for your small business.

Vandana GoelVandana Goel, FCA, M. Com is a Management and Corporate Tax Consultant and she can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

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