Tax Planning For Business Owners in Nigeria

Tax is a crucial part of running a business. In addition to helping the government, taxes are also beneficial for business owners in the long run. However, many owners are still clueless about how tax Nigeria works, let alone how to do tax planning to get the best business practices.

The Importance of Tax Planning

Planning in this context is to calculate the right amount to avoid overpaying the tax. At a glance, there is nothing wrong with overpaying the tax by a small amount. However, it also means halting the business progress as they can’t use the money to invest in manpower or equipment.

Employees can benefit from this practice, as it means they may receive more in their pensions. One of the divisions of planning is reducing the tax on pensions.

Personal vs. Corporate Tax

A common issue among small business owners is how they have difficulties paying their taxes. This is because they don’t have separate bookkeeping and thus conflate their income and expenses. However, they need to start learning the difference to file the correct one.

· Personal income

This tax is the amount that the business owner has to pay as an individual. The amount is calculated from the salary and revenue they receive. Even if they don’t receive any salary, they still need to pay for the dividends they receive.

The amount of personal income tax is different from the corporate. A business owner may need to pay multiple income taxes in different countries. This can happen when they have multiple jobs as the tax applies for each income source.

· Corporate tax

As the name implies, corporate also known as the company income tax is calculated from the gross revenue. The deduction is the company income is purely calculated as the profit.

After deducting the administrative expenses, marketing, and other operating costs, the company comes with a profit margin. This amount is taxable and must be calculated accordingly.

If there is no profit for the taxation period, then there is no tax to pay. However, a company should not cook the number and pretend that the company is constantly at a loss or only has a minimum profit to pay less tax.

Is Tax Planning Legal?

Technically, the planning practice is legal. Numerous businesses are doing it to maximize their net revenue. The practice is quite common even in the large company.

With the right planning, the company can further increase its revenues and expand its business. Keep in mind that all sizes and types of businesses have similar strategies for managing their taxes.

It sure is a fine line to walk in. But as long as the company manages to avoid defrauding the nation, or filing a falsified report, they have nothing to be worried about.

Just like in other countries, Nigeria also has a taxation law for business owners. Of course, some of them are planning their tax Nigeria to avoid paying the maximum amount. While some people may have reservations about the practice, most agree since it’s still legal. Anyhow, we’d like to know what you think about the practice. Leave a comment to share what will you do as a business owner on planning your taxes.