Small Business Tax Planning

Income is hard earned these days with a high percentage going to the Revenue Commissioners. There are legitimate ways that you can reduce your tax bill.  It is often reported that many of Ireland’s most successful business people pay the least amount of tax. They recognise that tax is a cost just like any other and this cost can be managed and reduced with proper planning and advice.

Practical tax reduction strategies for small business

  • Keep proper records - This might sound obvious but many businesses miss out on legitimate tax deductible expenses or incur unnecessary add backs or penalties because their accounting records are not sufficient to capture and support all of the expenses that they are entitled to claim.
  • Research your entitlements - Ask your accountant, or take time yourself, so that you have a good understanding as to what tax deductible expenses are appropriate for your business.
  • Review your expenditure prior to year-end - It may make sense to bring forward expenditure that you had planned on either equipment, repairs or other items prior to your year end to capture that tax relief within the current year.
  • Fund capital expenditure to maximise tax relief - If you purchase equipment from cash flow or by loan you can get relief at 15% i.e. over six and half years. It may be appropriate to purchase equipment by lease purchase and claim the tax relief over the lease period i.e. three years.
  • Employ spouses or other family members - It can sometimes be tax advantageous to employ spouses or other family members provided that you can create and justify their role within the business.
  • Change your year-end - If your business is seasonal or if your profit levels are either increasing or decreasing it may be worthwhile in certain circumstances changing your year end.
  • Manage your preliminary tax - Opt to pay your preliminary tax based on the current year estimates where your income is falling.
  • Tax free mileage and subsistence - Revenue permit the payment of mileage and subsistence tax-free provided the appropriate documentation is maintained.
  • Consider incorporating to a limited company - There are other considerations to be examined in forming a company, but it may be appropriate to achieve a tax advantage if you are generating profits over and above the level required to fund your personal living expenses.
  • Prepare management accounts prior to year end - Quantify your potential tax liability prior to your year end to give you sufficient time to plan and manage your tax bill.