Beginner’s Guide to Tax Procedures for Your Business

taxation

Starting any business is not easy. One has to understand the legal framework operating in the country. Any business aims to fulfill the needs of its customers and make profits. The business is also obligated to observe it taxation responsibility. Tax is the share of income that a business is required to pay to the government. It is a compulsory payment, and failure to pay can lead to serious legal consequences.

To avoid breaking the law, the business should create a workable tax policy through a professional tax consultant.

List all assets and liabilities

tax proceduresThe first step is to list all your assets and liabilities in the business. An asset is the owners claim in the business. All the liquid cash, cash at bank, debtor, building and any other investment the owner has invested in. A liability is the amount of money the business is obligated to pay to other people. Tax is also a form of liability. Find the difference between the assets and liabilities. The figure you get is called the net assets. This is the real value of the business. It will form the base of your taxation.

Keep good book of accounting

Every business should keep good books of accounts. All the transaction of the business should be recorded in a book. This information should be used in the calculation of tax. There are two types of books that every business should keep. The balance sheet and the profit and loss account. The balance sheet records all the book and net value of all assets and liabilities.

The net value of an asset is the real value of an asset. This means the buying price less the depreciation value. It is important to note that depreciation is treated as an expense in the books of account. The profit and loss account is the statement that records all the incomes and expenses of the business. The difference between the income and the expenses is called the profit. A certain percentage of the profit is taxed. If the business operates in at a loss, it is not taxed by the government. The loss must, however, be ascertained in the books of accounts.

Understand the tax rate and estimate your tax correctly

tax policiesDifferent countries have different tax rates. Understand the tax rate of the countries of operation. Normally if a business is a sole proprietorship business, the business and the owner are treated as one tax entity. The business will not be taxed; the sole proprietor will be taxed. If the business is a partnership, the partner will be taxed on behalf of the business.

If the business is registered as a company, the company is treated a taxed individual. The tax to be paid from a company are approximated using the income of the previous year. One should hire a tax expert to help a company formulate the best tax policy.