Incorporation has several benefits not to mention that its owners enjoy limited liability. However, one very important reason to consider incorporation is positive tax results. Setting up an incorporated company means that you can enjoy several tax benefits. Following are some ways to consider if you want to improve your company’s tax liability subsequently.
1.Decide to Create a Business Structure
The best way to reduce tax liability is to shift from a sole proprietorship and transform your business into an official structure (Ltd). If you don’t consider creating an official business structure then you are most likely to be termed as a sole proprietorship. This means that all your business income (less expenses) will be taxed on your personal tax return and you will have to pay NI on any profits made.
2.Search For a Tax Friendly Business Structure
Explore the different types of business structures that are present and select the one that suits you the best. Apart from sole proprietorship, all other business structures are tax-friendly however, it isn’t necessary that they are as good as an incorporation. Although incorporations provide a more tax-friendly structure, it is highly inflexible when it comes to operations. Watch out for structures that require the business to pay taxes every year and that the business owners pay taxes on the income they receive. While other business structures don’t pay double taxes and owners have to pay tax on the incomes they receive only.
3.Plan Ahead
Once you have decided upon a business structure, the next step is to employ business professionals. You should consider hiring an accountant who will help manage your taxes. Accountants have the necessary expertise and knowledge required to catalogue your expenses into the most tax efficient filing. They are highly trained in tax preparation and are aware of little deductions that make huge differences when filing your return. You might also want to consider hiring a bookkeeper who will take care of all your financial statements and the budget as well. Employing business professionals that have some kind of financial experience will benefit you in the long run, especially when it concerns your company’s tax liability.
4.Be Sure to Do All Your Taxes on Time & Accurately
It is very important that you have your taxes done on time and properly. If you are unable to get your taxes done before the suggested deadline then it is likely you will be fined. It is also wise to make estimated tax payments, which will avoid last minute hiccups related to paying your business taxes. In case, you find hiring an accountant expensive, you might want to consider an accountant or tax preparation software, which is an affordable alternative. Either way, it is extremely important to get your taxes done well before the deadline to avoid experiencing any problems with tax authorities.
