Tax Planning Tips for Small Businesses

Taxes are one of the most extensive complexities in India, especially for small businesses, because of a lack of resources and professional guidance. In simple words, taxes create financial hindrances for companies to expand and manage their expenses. Thus, it is required for small businesses to maintain their taxes in order to reduce tax liabilities properly.

In this article, we have mentioned the best possible tax planning tips for businesses in India. It will allow you to lower your taxes in different conditions significantly. Moreover, we have also mentioned a complete tax planning calendar for small businesses in India for the Financial Year (FY) 2023-24.  Without any delay, let’s get to know about these taxes !! 

Tax Planning Calendar for Small Businesses in India

Here, we have covered the entire tax compliance calendar for the financial year 2023-24. It consists of all the important dates regarding Income Tax, GST (GSTR1 & GSTR3B), TDS, ROC, and general accounting for small businesses, individuals, and professionals.

6 Benefits of Tax Planning Software for Small Businesses in India

Tax planning software is like taking one step ahead towards the utilization of artificial intelligence and machine learning in the operational activities of business. Here, we have mentioned certain essential benefits of tax planning software in India. 

1. Accuracy and Compliance 

The tax planning software allows businesses to automate their complex calculations and ensure accurate financial computations. It significantly reduces the risk of human error and boosts the accuracy of financial reporting and tax filing. Therefore, software works as the fundamental pillar for small businesses. Tax planning software also helps companies align with ever-evolving tax rules and regulations. This means it automatically reads the changing tax laws and regulations and allows the businesses to maintain compliance with the current legal requirements. It leads companies to lower the chances of facing legal penalties and audits.  

2. Time-Saving 

Tax planning is a very time-consuming but essential aspect of financial management. The tax planning software comes into play and solves this problem for the businesses. They can easily automate various tasks of businesses, including data entry, calculations, documentation, etc., and significantly reduce the time and effort of their financial processes. Simply put, the tasks that have required the workforce can easily be streamlined now, allowing you to allocate your resources more efficiently. During the tax season, the software will smoothly process and organize your financial data to prepare your tax reports on time and file the returns before the deadline. This time-efficient approach helps small businesses to spend more time focusing on developing strategies for business growth. 

3. Forecast and Planning 

Tax planning software not only helps businesses by documenting and managing their information but also allows them to predict future tax liabilities. In this way, this software even utilizes historical financial data to develop effective strategies. Software regularly analyzes the changes in revenue, expenses, income, and tax laws and regulations. This forecasting feature helps the business to be prepared for budgeting purposes and create a separate fund for future tax payments and any other financial surprises. In simple terms, forecasting and planning allow businesses to make informed decisions. In fact, businesses can adjust their financial strategies and tackle economic conditions.  

4. Documentation and Record-keeping 

Documentation and record-keeping are one of the primary fundamental steps of financial management. Tax planning software is the master in systematically organizing the financial data of the company, including its income statement, receipts, expense reports, and more. Along with managing the data, this software also allows businesses to store information in a secure and easily accessible place. Hence, you can easily use this information to create an accurate and comprehensive audit trail for your business. Plus, you can also monitor your documents and business information from time to time to enhance your company’s transparency and accountability. Therefore, you can expect a well-organized and reliable documentation system for your business with the help of these tax planning software.

5. Cost-Effectiveness 

Tax planning software mainly helps businesses streamline their financial management process and reduce the requirement to use external services. When you can automate all your financial processes with just the help of software, you don’t require many employees in this aspect of your business. Hence, it allows you to save a lot of money that would be spent on managing the workforce. Small businesses can better utilize this software and save a lot of money instead of wasting it on additional staff. However, you would still need professional assistance to check and verify all your accounts from time to time. But it wouldn’t be that costly. You can use the software of a one-time payment or subscription-based model on the basis of your needs and requirements. Plus, when you save your costs, you ultimately boost your profit margins.  

6. Easy Audit Preparation 

Audit preparation is one of the essential tasks carried out by tax planning software. All the businesses have to be periodically audited by tax authorities or external entities. The software appropriately manages and organizes the financial records, including its transactions, expenditures, and revenue. With the help of this software, you can smoothly and quickly retrieve the required data and present it during the audit. It can also help you generate detailed reports, track timely changes, and prepare accurate historical records for better demonstration. Plus, it will also help you to find out and rectify certain irregularities. Therefore, it gives the company confidence in the audit following all the regulatory requirements.

7 Best Tax Planning Tips for Small Businesses that are Growing Rapidly

Growing businesses generally have more responsibilities over their shoulders, which makes the founders and leading managers focus more on the business rather than tax planning. However, it can lead your business to create a bad image and book heavy tax liabilities in the market.

Here, we have mentioned certain tax planning tips suggested by tax professionals to reduce your tax liabilities legally:

1. Maintain Your Business Expenses 

Generally, the businesses that are growing rapidly have various expenses depending upon their revenue. At this point, they can take the help of the Income Tax Act and claim the required deductions over those expenses. It simply means that you can easily save taxes on those expenses. To claim these deductions, you have to maintain proper business transaction records.  

2. Late Tax Filing can Lead You to Penalty

In the growth phase of any business, founders and leading managers generally forget to file the required taxes on the required deadlines. Thus, you should forget the importance of tax deadlines, as they can let you face a penalty. Therefore, it is one of the crucial tax planning tips for small businesses that are growing rapidly in India. 

3. Must Hire a Professional 

When a business is in its growing phase, you have to take care of multiple things at a time. It is the phase when you require the right guidance and proper functions. Therefore, it is always a good idea to hire a CA or tax consultant, as they will help you reduce your tax liabilities by utilizing more deductions and tax credits. Moreover, you will also be able to focus better on your business as if someone responsible is already seeing the taxes. 

4. Plan Investments 

Investments are also one of the great options for businesses to save their taxes. You can invest in various programs such as ELSS, PPF, tax-saver, FDs, etc. However, make sure to properly plan the investment amount and time duration to get the best possible outcomes. It will allow you to make more deductions and exemptions while filing your ITR.  

5. Claim All Possible Deductions

A growing business generally has more advantages than deductions. For instance, multiple deductions are available for growing companies or startups over their investments and business expenses. You can claim for deductions like home office deductions, charity or donation deductions, and much more. 

6. Leverage Net Operating Losses

Growing business refers to a face spike in the graph of losses and profits. In this way, you can even utilize the losses for your benefit and save your taxes with the help of them. In simple words, you can show the less official taxable income in your books in order to cover those previous losses. That’s how you can lower your tax liabilities by even utilizing the losses. 

7. Manage Cash Flows

Cash flow management is amongst the best tax planning tips for small businesses that are growing rapidly. You should timely fill your monthly and quarterly taxes, as it will allow you to complete your tax liabilities over the year and not face a load of excessive expenses at the end of the financial year. Moreover, the proper cash flow can also help you avoid excessive penalties and interests.

Also Read: How GST Has Helped Businesses To Reduce Their Tax Burden?

5 Effective Tax Planning Tips for Small Businesses that are Planning to Sell or Merge

When a business is going to sell, you have to take care of various factors to save a significant amount of your money. Here, we have mentioned some of the valuable tips to lower your tax liabilities before selling your business.

1. Maintain Good Financial Records 

If your business is going to be sold out or merged, then you have to end it after properly reconciling the records of your business revenue and expenses. The tax planning is done based on your company’s financial data. Therefore, properly marinating your financial records will help you better plan your taxes. You can even use tax planning software to evaluate your business records effectively. 

2. Keep Some Extra Funds for Managing Tax Liabilities 

Businesses generally need to pay the taxes several times a year. Thus, if your business is going to merge with another entity, then it is required for you to have some contingency tax funds. It will allow you to not scramble for the taxes at any time because you can pay them anytime needed. Business owners generally keep the 35% profit as their contingency funds for managing taxes. 

3. Try to Lower Your Adjusted Gross Income

Most taxes are generally dependent upon the Adjusted Gross Income (AGI) of the company. Now, when you’re planning to sell your business, you should try to lower your AGI to reduce your extra taxes over various expenses. To reduce your Adjusted Gross Income, you can invest in health saving plans or other investment options. It will effectively reduce your tax liabilities. 

4. Take Professional Guidance

The professional always helps in any condition to reduce your tax liabilities. You just have to give a small chunk of it to your tax advisor. They better know and understand the conditions when a business is about to sell or merge. Hence, they can better take advantage of those deductions and tax credits that you might not even be aware of. In this way, you can significantly reduce your tax liabilities. 

5. Document Your Transaction

While selling your business, you should maintain the transparent and compiled documentation of your business transfer. In fact, you have to maintain the proper records of the financial statements, contracts, agreements, and tax-relevant filing. It will allow you to plan your tax better and save the most possible out of it.

Also Read: Tax Implications For Small Businesses In Specific Industries

5 Tax Planning Tips for Small Businesses that are Planning to Retire

At the time of retirement, small businesses should work more strategically and practically. Because, it can allow you to leave with the most profits in hands. Here we’ve mentioned the tax planning tips for small businesses that are planning to retire: 

1. Create a Business Exit Plan

Small businesses that are planning to retire should have a comprehensive exit plan. You have to calculate your capital gains and tax concessions to make your business retirement as profitable as possible. It will allow you to save a lot of additional taxes and expenses if an exit is planned properly.   

2. Reassess Your Business Investments 

Businesses generally hold a lot of investments that allow them to increase their overall worth. Most of the investments are tax-exempted to a limited amount. Thus, you have to reassess all of your investments and give yourself a better retirement. 

3. Utilize Retirement Contributions and Bonuses 

Companies provide bonuses and retirement contributions to their employees that allow them to reduce their tax liabilities significantly. Here, you can hire a professional to properly handle the retirement contributions and keep your company in profit. Moreover, it will also satisfy the company’s employees, which will directly impact your revenue. 

4. Understand the Capital Gains 

Small business owners need to determine their tax liabilities. Tax rates easily vary with the time that can let you face different amounts of liabilities. Simply put, long-term capital gains are generally taxed at a lower rate in comparison to short-term gains. Therefore, if you properly utilize such tax planning tips for small businesses that are planning to retire, it will allow you to lower your tax liabilities significantly. 

5. Guidance From Tax Advisors or Fellow Business Retirees 

Lastly, the most effective one is that you should take guidance from tax advisors or fellow business retirees. They are more experienced than you in terms of tax planning. Therefore, it is amongst the best possible tips to reduce your tax liabilities and instead retire making a lot of profit.

Also Read: GST: Everything You Need To Know For Small Business

Wrap Up

Small businesses generally have more tax liabilities than others as they do not have the required resources to reduce them. It is not necessary to tell the importance of reducing taxes. Thus, we have mentioned the professional’s suggested tax planning tips for small businesses. We hope you properly apply these tips to your business and get the best possible outcomes.

Prarabdh Gupta Freelance Content Writer & Strategist

Prarabdh Gupta is a finance content writer with 4+ Years of Industry experience in simplifying complex finance terms. He crafts captivating and engaging content around mutual funds, insurance, banking, real estate, taxation, and financial planning. He has completed his graduation from Jiwaji University, Gwalior.

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