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Article by listed accountant  Japie Vorster

While the term “tax planning” is frequently used, it is not necessarily well understood.

Let's start of by explaining what Tax Planning is...

Tax planning can be defined in short as an arrangement of one's financial and economic affairs by taking complete legitimate benefits of all deductions, exemptions, allowances and rebates according to laws and regulations to ensure that tax liability reduces to a minimum. Tax planning imply compliance with the taxing provisions in such a manner that full advantage is taken.

Business Owners pay their taxes all year long, so they should be focussing on tax planning all year long.

Businesses with the foresight to plan ahead can avoid missed opportunities and capitalize on scores of perfectly legal opportunities to lower their taxes.

For a small business, minimizing the tax liability can provide more money for expenses, investment, or growth. Even if you employ a professional bookkeeper or accountant, you should keep careful tabs on your own tax preparation in order to take advantage of all possible opportunities for deductions and tax savings, that's where a tax expert can assist.

Benefits of tax planning

By engaging in Tax Planning, you can ensure that maximum deductions and write-offs are identified and together, we can minimise the amount of tax owed. In order to make educated decisions about your business, it’s imperative to scope Tax Planning. It forms a pivotal role in reaching your Profit Goals, through the effective implementation of your Business Plan. (If you don’t have one of these, you can engage our help with this also). 

Relevant deductions, loopholes, and exclusions are studied with some rigor. Business Tax Planning involves taking stock of assets and estimating tax liabilities well in advance of payment deadlines. This gives you time to react and re-shuffle certain divisions or debts in order to capitalise on the expected tax breaks.

Taking advantage of a tax benefit at the earliest possible opportunity makes perfect sense. It saves you cash, which gives you the time value of the tax saved plus the immediacy of the benefit creates greater certainty for you. Sometimes the action of one day can make the difference of one year in when the tax is paid.

Tax Planning Strategies

There are countless tax planning strategies available to a small business owner. Some are aimed at the owner’s individual tax situation, and some at the business itself. But regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

  • Reducing the amount of taxable income  
  • Lowering your tax rate  
  • Controlling the time when the tax must be paid  
  • Claiming any available tax credits  
  • Avoiding the most common tax planning mistakes