Deferring Your Tax Obligation: Smart Strategies for Business Start-ups

Tax deferral is a creative way of managing your business tax obligations and liabilities. It means taking deductions and recognising them in an earlier year. It also means accruing some of your business income to a later month or year. The objective is not to reduce or eliminate your tax obligations, but to get some short-term benefits for the good of your business. Managing your tax deferral properly reduces your current tax obligations, enabling you to benefit from the concept of the time value of money. The extra money that would have otherwise gone to taxes will be available to invest and yield more revenue or interest.

Here are some innovative deferral strategies for start-up businesses:

Accrue Your Income and Accelerate Your Expenses

Accruing your income and accelerating your expenses is a straightforward and simple strategy. Examine your profit and loss account for the sales made and the income you anticipate. If the numbers are high, try pushing some of the income into the subsequent month or year. You can recognise them on credit or ask for partial payment to reduce the current tax liability. At the same time, look at your expenses and pull some of them from the subsequent month or year into the current period. You can then prepay them to validate your tax claim.

Invest in Retirement Plans

Retirement plans often attract tax incentives for both employers and employees. You can take advantage of this by contributing on behalf of your employees. For example, a defined benefits contribution doesn't limit the amount you can contribute as the focus of this plan is on the desired future benefit. Therefore, you can vary your contribution depending on the disposable income available in the business.

Go for Investment with a Low Turnover

Your risk diversification strategy could be investing in other companies to generate more revenue for your enterprise. When doing so, think about your investment turnover ratio and the tax implication it has on your business. The turnover ratio refers to the rate at which you sell and buy stocks or interests in other businesses. Index funds, exchange-traded funds and mutual funds are some of the examples. Ideally, you should keep your turnover ratio low to mitigate your tax obligation. A high ratio means that your investment gains and are high and attracting a high amount of tax in the process. You would rather go for investments with lower returns spread over a long period.

For further assistance, be sure to work with local tax accountants.