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Tax Efficient Strategies for a Small Business in RSA

There are countless tax planning strategies available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself. Regardless of how simple or complex a tax strategy is, they are all designed to accomplish one or more of the following goals:

  • Reduce your amount of taxable income
  • Lower your tax rate
  • Claim available tax credits and deductions
  • Control the time when taxes are paid
  • Avoid the most common tax planning mistakes

Small business owners should work with their accountants to develop an effective tax planning strategy. You should already be projecting your sales revenue, income, and cash flow for general business planning purposes. The better your estimates are, the better your tax planning efforts will succeed.

Here are just a few tax strategies that you might be able to take advantage of:

Consider a Tax Status Change

As a small business owner, you have several options for structuring your business. You can operate as a sole proprietor, partnership, limited liability company or small business corporation.

The business structure you choose impacts your taxes. SARS allows for certain breaks for owner-operated businesses designed to stimulate growth.

For instance, a standard company or close corporation gets taxed at 28% from the first R1 of profit generated in the year of assessment. By contrast, the tax of a small business corporation (SBC) is calculated according to a more tax-effective table at a sliding scale. For example, in the current year, for a small business corporation with taxable income from R1 to R91 250 there is no tax to be paid.

Whilst for a standard company or close corporation you will get taxed at 28% from the first R1 of profit generated in the year of assessment. You will be taxed an amount of R25 550/on your R91 250.00 for 2023 tax (current) year.

So, see if you qualify as a small business corporation and save on tax.

Set Up a Retirement Account

Setting up and funding a retirement plan for yourself and/or your employees can save you money on taxes. Make sure it’s a qualified plan so you can take advantage of those tax savings. It must be one that’s recognized by SARS to allow deferment of taxes on earnings until the earnings are withdrawn.

Take Advantage of Tax Credits

Tax credits can help lower your income which means you will owe less to SARS. You can get tax credits by for instance hiring young employees.

Maximize Your Deductions

One of the most common tax mistakes small business owners make is not maximizing their deductions at tax time. As a business owner, you’re entitled to deduct certain expenses, losses, and costs from the amount of taxes you owe.

The best approach would be to think of every expense as an opportunity to reduce your taxable income, and then to either verify the deductibility yourself or run it past your tax practitioner.

Avoid these Tax Filing Mistakes

Part of developing a successful tax planning strategy includes understanding your tax deductions, what taxes are due and when, and common filing errors to avoid. Some common problems small business owners make include:

  • Failing to Keep Receipts and Accurate Records. Throughout the year you should be keeping a record of every purchase you make for your business. In addition to making sure you don’t miss important deductions, keeping receipts (either digital or paper) is important if you or your business are ever audited.
  • Forgetting to Make Scheduled Payments. As a business owner, you need to make estimated tax payments, like clockwork. If you forget, you will have serious problems at tax time.
  • Mixing Personal and Business Finances. Keeping personal and business finances separate will prevent errors and save time. Keep a separate business bank account and use a separate business credit card to ensure your business income and expenses are clear and easy to track.

Time Your Business Income and Expenses

Timing your income involves moving it from one year to another. You first have to determine the year in which you expect to pay the most in taxes. Remember, your income tax is charged based on the amount of income you made during the previous calendar year. In this case, a successful sales strategy is a double-edged sword: the higher your income, the higher your taxes.

Write Off Bad Debts to Reduce Income

The end of the year is also the time to review your customer accounts if your business operates on the accrual accounting method. Find those customers who aren’t likely to pay you. You can write off the amounts they owe as “bad debts” and deduct these amounts from your business income to save on taxes. 

This reduces your income, lowering your income tax. The caveat here is that unfortunately if you do write off a bad debt and the person pays you later, you must reverse the write-off.

Write-off obsolete inventory

The basic rule is to value the inventory at your purchase cost, and all those items that do not have any value are not counted as your inventory. The loss incurred on the valueless items is shown as a higher Cost of Goods Sold (COGS) on the tax returns. This means that you have incurred a cost of the item, but there was no revenue associated with it. When your COGS is higher, it would result in more deductions from your total sales and, eventually, lower your profits. Lower profits would result in lower taxable income, so you would have to pay less.

Use technology to help streamline the process in future

To ensure that your tax season goes as smoothly as possible, be sure to take full advantage of technology.

Using cloud technology can help you massively reduce some of the manual tasks associated with tax and helps you track finances closely throughout the year so that there are no nasty surprises when tax season arrives.

Platforms like Xero makes it simple to streamline the process – you can use bank feeds to help pull through your business transactions each day, snap receipts and upload expenses instantly and then e-File VAT directly to SARS.

This frees you up to focus on running your business.

Check With a Qualified Tax Advisor

As a small business owner, it’s impossible to keep up with every change in tax law. That’s why it’s important to work with a trusted tax advisor throughout the year to plan for taxes. When you build an ongoing working relationship with someone who understands your business, they’ll be able to help you maximize your revenue and minimize your tax liability.

Consider hiring an expert who can represent you before the SARS in case you’re ever audited.

Note: These tips are not intended to be tax advice, but only to give you some tax-saving ideas to discuss with your tax professional. Every business is unique, and tax laws change frequently. 


Gervase Mwango


Tax Practitioner Number: PR0093056

+27 72 490 8099