Business tax – tips, tools and tricks to help your small business

Before we start, we have to mention that we are not an authorised financial institution, nor are we affiliated with any financial institutions. We are not offering advice on how to better manage your money, we are simply giving you the tools to either get the right advice or find businesses to help you with your taxes.

Taxes can be confusing, and get complicated. We’ve tried to keep this simple.

Let’s start with defining individual tax and corporate or business tax.

Individual tax vs. business tax

When it comes to taxes, small business owners often find themselves navigating a complex landscape. It's crucial to understand the distinction between individual and corporate tax to ensure you're fulfilling your financial obligations correctly. Knowing the difference between these two helps define what you should classify as your personal tax vs. your business tax.

Individual tax: This type of tax applies to individuals, including sole proprietors and partnerships. It's based on personal income earned throughout the year. Your tax liability is determined by your taxable income, which is calculated after deducting allowable expenses.

Business tax: Is tax levied on the profits of a company or corporation. It's a separate tax entity from the individuals who own or operate the business. Companies file a corporate tax return to determine their tax liability based on their taxable income.

Provisional Tax

Provisional tax is a system designed to help companies and sole traders manage their tax payments throughout the year, rather than having to pay a lump sum at the end. It involves making two separate tax instalments over the course of the assessment year.

The first provisional tax payment is due within six months of the start of the assessment year. For tax years commencing in March, the first payment would be due by 31st August. This initial payment covers approximately half of the estimated total tax liability for the full year.

The second provisional tax instalment must be paid by the last working day of the assessment year, which is typically the 28th or 29th of February. This final payment makes up the remaining estimated tax due, minus what was already paid in the first instalment.

It's important to ensure you pay between 80-90% of your total income tax liability through these two provisional payments. Failing to do so can result in penalties of 10% and interest charges on any late or underpaid amounts. Staying on top of your provisional tax obligations can help small businesses and self-employed individuals better manage their cash flow and avoid a large tax bill at the end of the year.

Business tax: key tips for small business owners

Understanding business tax is essential for small business owners. Here are some valuable tips to help you navigate the tax landscape in South Africa:

• Separate business and personal finances: Maintain clear financial boundaries between your personal and business accounts. This will simplify your tax preparation and reduce the risk of errors.

• Track expenses carefully: Keep detailed records of all business expenses. This includes receipts, invoices, and bank statements. Proper documentation is crucial for claiming deductions and minimising your tax liability.

• Understand tax deductions: Familiarise yourself with the tax deductions available to small businesses. Taking advantage of legitimate deductions can significantly reduce your tax burden.

• Choose the right business structure: The structure of your business (sole proprietorship, partnership, corporation, etc.) impacts your tax obligations. Consult with a tax professional to determine the most suitable structure for your business.

• Consider tax-saving strategies: Explore tax-saving strategies like incorporating, taking advantage of tax credits, or deferring income. However, always consult with a tax professional before implementing any strategies.

• Comply with tax deadlines: Adhere to tax filing and payment deadlines to avoid penalties and interest charges.

Useful tools for managing your business taxes

Several tools can assist you in managing your business taxes efficiently:

• Accounting software: Tools like QuickBooks and Xero can help you track income, expenses, and generate financial reports essential for tax preparation.

• Tax preparation software: Software specifically designed for tax preparation can simplify the process and help you identify potential deductions.

• stub: Assists with payroll calculations, employee tax deductions, and generating tax-related reports.

stub

stub is a financial tool for small businesses that helps you send invoices, get paid, and track income. It's free to use with a paid upgrade option for more features. stub has been featured in the press and has over 100,000 users.

The benefits of using stub for your business:

• Easy to use: stub is very easy to use, even for those who are not tech-savvy.

• Affordable: stub is free to use, with a paid upgrade option for more features.

• Helpful: stub has a team of customer support specialists who are always happy to help.

If you're a small business owner, we recommend checking out stub. It can help you save time and money.

Learn more about stub on their website.

QuickBooks

QuickBooks is a tool for small business owners looking to streamline their financial management. By automating tasks like invoicing, expense tracking, and payroll, it can save you time and effort.

Key benefits include:

• Organised finances: Keep track of income and expenses efficiently.

• Improved cash flow: Monitor your business's financial health closely.

• Simplified tax preparation: Organise financial data for tax season.

While there is a cost associated with QuickBooks, the time saved and potential financial benefits often outweigh the expense.

Helpful links for tax information

• SARS (South African Revenue Service): Provides comprehensive information on both personal and corporate taxes.

• TaxTim: Offers tax preparation services and resources to help individuals and businesses navigate the tax system.

Understanding the basics of corporate tax, maintaining accurate records, and utilising available tools, small business owners can effectively manage their tax obligations and maximise their financial success.