OP-ED CON­TRI­BU­TION: Here’s why you need a tax plan

Jamaica Gleaner - - BUSINESS - Serika Ster­ling is a tax spe­cial­ist and Man­ag­ing Di­rec­tor of Se­nior Ac­count­ing Ser­vices. Email: stster­ling@sasjm.com Twit­ter: @acc­ster­ling

THOUGH RUN­NING any type of busi­ness brings with it some in­her­ent risks, we all know that a busi­ness with a sound plan is more likely to suc­ceed. Un­for­tu­nately, it is often the case that while en­trepreneurs may have all sorts of busi­ness plans in place, lit­tle or no im­por­tance is placed on hav­ing a tax plan.

Many say they just have a ‘one-man shop’, that they don’t need a tax plan. But aside from the fact that a one-man shop needs to pay taxes, do you in­tend to re­main a one-man shop for­ever? I don’t think so. There­fore, the same im­por­tance placed on plan­ning a mar­ket­ing or growth strat­egy should be placed on tax plan­ning. As Ben­jamin Franklyn said: ‘If you fail to plan, you are plan­ning to fail.’

Tax plan­ning in­volves con­sid­er­ing the im­pli­ca­tions of cur­rent and fu­ture busi­ness de­ci­sions with a view to legally min­imise or delay tax li­a­bil­i­ties. Al­though our tax leg­is­la­tion were cre­ated to en­sure that ev­ery­one pays their fair share, they also af­ford all tax­pay­ers the right to or­gan­ise their fi­nan­cial af­fairs in such a way so as to min­imise their taxes when­ever pos­si­ble.

This may al­low you to have more money to in­vest in your busi­ness or oth­er­wise.

With the as­sis­tance of your tax pro­fes­sional, a sim­ple tax plan can help you to un­der­stand, among other things, how dif­fer­ent types of in­come are taxed, how to utilise tax de­duc­tions to re­duce your tax­able in­come, the avail­abil­ity of in­dus­try-spe­cific tax cred­its or re­lief, and the tax im­pli­ca­tions of do­ing busi­ness over­seas or with a re­lated party.

This may seem oner­ous, but your ini­tial tax plan need not be 100 pages long, very tech­ni­cal or even very de­tailed. A sim­ple writ­ten list of the im­pact of tax­a­tion on cer­tain key de­ci­sions can act as a road map and make a huge dif­fer­ence to your busi­ness life and per­for­mance.

BIG­GEST MIS­TAKE

The big­gest mis­take many busi­nesses make is to not con­cern them­selves with taxes un­til Fe­bru­ary or March — seem­ingly with the hopes that the govern­ment will some­how de­cide to abol­ish taxes be­fore they are re­quired to file or pay.

How­ever, dur­ing this pe­riod of in­de­ci­sion, you may have com­mit­ted tax blun­ders that could pos­si­bly cost you mil­lions in oth­er­wise avoid­able taxes. The aim is to plan the fu­ture of your busi­ness with taxes in mind, to make sure you don’t have to learn th­ese lessons the hard way.

Fur­ther­more, the space in which we now do busi­ness tran­scends bor­ders. With tech­nol­ogy, you can have a busi­ness reg­is­tered in Ja­maica, your main sup­plier in China, your ac­coun­tant in the United States and a cus­tomer base any­where in the world. You would now not only have to con­cern your­self with the lo­cal tax­ing leg­is­la­tions, but of all th­ese coun­tries as well. A tax plan can help you to un­der­stand the dif­fer­ences in tax sys­tems, tax rates, busi­ness in­cen­tive pro­vi­sions, and com­pli­ance re­quire­ments.

The above brings to the fore, some of the rea­sons why tax plan­ning is im­por­tant. With at least a gen­eral un­der­stand­ing of the po­ten­tial im­pact of tax­a­tion on your busi­ness, man­age­ment is bet­ter equipped to make ev­ery­day busi­ness de­ci­sions. Some of the de­ci­sions that a tax plan may as­sist a busi­ness in mak­ing are: Tim­ing of fixed as­sets pur­chase; Val­u­a­tion method for in­ven­tory; Ap­pli­ca­bil­ity of in­dus­try spe­cific tax re­lief; How to struc­ture com­pen­sa­tion for em­ploy­ees, con­trac­tor, etc; Which cor­po­rate struc­ture to em­ploy — sole pro­pri­etor, part­ner­ship, etc; What to in­vest in — shares, cap­i­tal ven­ture, etc; How best to ne­go­ti­ate busi­ness deals in other coun­tries and with re­lated par­ties.

IIIIITAX AVOID­ANCE OR EVA­SION

There are many mis­takes peo­ple make when it comes to tax plan­ning that could cost a busi­ness sig­nif­i­cant amounts of money. Out­side of not plan­ning at all, is not know­ing the dif­fer­ence be­tween tax avoid­ance (le­gal) and tax eva­sion (il­le­gal).

Tax avoid­ance is us­ing our ‘beloved’ tax leg­is­la­tion to re­duce one’s tax li­a­bil­ity, by tak­ing ad­van­tage of ben­e­fi­cial taxlaw pro­vi­sions — for ex­am­ple, se­cur­ing a tax re­lief, util­is­ing tax cred­its, and gen­er­ally mak­ing max­i­mum use of all ap­pli­ca­ble tax breaks avail­able. This is the ob­jec­tive of tax plan­ning.

On the other hand, tax eva­sion is seen as an il­le­gal at­tempt to avoid fil­ing or pay­ing taxes, which could land you in jail. This in­cludes, fail­ure to file re­turns and non-pay­ment or un­der­pay­ment of taxes. I often hear per­sons say: ‘I wasn’t evad­ing, I just didn’t know.’

Well, sad to say, all laws are con­sid­ered pub­lic knowl­edge; as such, ig­no­rance of the law can­not be used as a de­fence. Con­se­quently, you will still be held li­able for tax eva­sion, though you may be un­aware that the prac­tices you are en­gaged in is con­sid­ered as such.

We all know that our tax laws change al­most ev­ery year and the new rules and reg­u­la­tions seem to be­come in­creas­ingly com­pli­cated. There­fore, the im­por­tance of keep­ing abreast of changes and im­ple­ment­ing sound tax strate­gies can­not be overem­pha­sised.

One of the best ways to achieve this is to seek pro­fes­sional tax plan­ning help — this is usu­ally money well spent. En­sure how­ever, that whomever you are en­gag­ing to as­sist with your tax plan­ning needs has ver­i­fi­able tax ex­pe­ri­ence, to avoid be­ing short-changed.

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GUEST COLUM­NIST

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