Could you be paying more taxes than you need to?
Tax planning is essential for small business owners aiming to reduce their tax liabilities and maximise profits.
Here are some of the main strategies you can implement to reduce your tax liabilities:
- Take Advantage of Tax Credits
Tax credits reduce the amount of tax you owe. In Nigeria, there are various tax credits that you may qualify for, including:
- Research and Development (R&D): Businesses involved in innovation may be eligible for R&D tax credits.
- Employment and Training: If you invest in staff training or hire new employees, you may be eligible for tax credits.
- Environmental and Energy: If your business invests in energy-efficient equipment or sustainable practices, you may be eligible for green energy tax incentives.
Understanding which credits apply to your business ensures you can claim them correctly to reduce your tax liability.
- Utilise Tax Deductions
In Nigeria, small businesses can claim deductions for business-related expenses, which can help lower their overall taxable income and reduce their tax liability.
These deductions can include:
- Business Expenses: Office supplies, advertising and software tools are deductible expenses.
- Employee Costs: Employee-related expenses, such as salaries and pensions, can be deducted.
- Travel and Meals: Business-related travel expenses such as accommodation and meals are deductible when they are related to business operations.
- Maintain Detailed Financial Records
Proper record-keeping ensures that you can better identify opportunities to save on taxes and prove deductions if needed.
One way to do this would be by investing in accounting software to help you keep track of your financial records. Also, consider hiring an accountant to keep your records updated.
- Depreciating Assets for Tax Savings
Depreciation allows you to spread the cost of assets over their life.
This means that, instead of paying for the entire cost of an asset in one year, you can deduct a portion each year, which helps to lower your taxable income.
Make sure to track your assets and their depreciation schedules to take advantage of this.
- Invest in Retirement Plans
Retirement plans like pension schemes can provide tax benefits for both you and your employees.
In Nigeria, retirement contributions can be deducted from your income, lowering your overall tax liability.
- Hire Tax Professionals
Qualified tax professionals or accountants are experienced in tax planning.
They can help offer financial advice, ensure your business is compliant with tax laws and help to identify deductions or credits you may have missed.
- Choosing the Right Business Structure
The structure of your business significantly affects the level of taxes you pay. Limited liability companies (LLCs), for example, offer liability protection and more flexibility in tax planning.
Before you set up your own business, consider consulting a legal professional to help you determine which business structure is the most beneficial for you.
Overall, tax planning is an important task to keep up to date with when managing the financial side of your business.
Make sure to use these strategies when aiming to reduce your tax liabilities, and if you find yourself struggling to do so, do not hesitate to seek the help of legal and financial professionals.
Lawhaven Solicitors is one of the top law firms in Nigeria. If you need legal advice on topics related to taxes, contact us. Let us help you give your business the best platform to thrive.
Your first consultation is free!