With the fiscal year end just around the corner, while you could be concentrating on closing the year with a higher-than targeted sales and margins, it is time to wrap up your accounts for the current year and make the final efforts to save on tax payments. The below-detailed steps will not only help you close your books for the current year in a fiscally efficient way, but will also show you ways on how to save tax.
- Check your cash inflows
Pull out the reports and go through them with your accountant. See if you need to defer some income to the next year in order to remain in a lower earnings slab for the current year. This will directly result in reduced income tax payments for the current year.
- Spend on necessary overheads
Having ensured that the books of accounts are up-to-date and necessary incomes have been deferred, you need to check if there are any expenses that are due. This would be the ideal time to incur expenses, such as buying a new machine, stocking on supplies and inventory, and renovation or expansion of premises. Such expenses would reduce the current year profits, thus resulting in lower tax payments.
- Engage in charity
If you are thinking of how to save income tax apart from tracking your income, investment, and expenditure, Corporate Social Responsibility (CSR) is a good idea. Though an obligation for corporates, CSR may also be practised by small businesses. Such a habit will help greatly when you grow into a corporate. These charitable exercises not only reduce your tax payments but also improve your market presence and establish your brand as a socially-conscious business.
- Invest in tax-exempt instruments
After doing everything that is needed for the business like deferring the income, meeting the required expenses, and doing some charity, if you are wondering where to invest money to save tax, you may plan for your retirement by parking your profits in an Equity-Linked Saving Scheme (ELSS) fund, one of the best tax-saving options,.
The investments that you make in ELSS are exempt from your taxable income under Section 80C of the Income Tax Act, 1961. The earnings thereof and the maturity value are also exempt from income tax. By investing in ELSS, you are not only securing a financially-healthy retirement life, but also investing in the best employee of your business—yourself. Once you are free of worries about your future, you will be better able to concentrate on your business and make it grow better.
However, your year-end exercise does not end here. It is advisable to plan for the next year as well. Planning for the upcoming year will be much more fruitful because with the above exercise, you already have all the numbers in place to give you a clearer picture of your business.
The most effective financial control is achieved when you efficiently plan the year ahead, effectively follow the plan by modifying as and where necessary, and stay atop the updated numbers.
This exercise requires a thorough research and understanding of the business. As a business owner, it is a given that nobody will know the nuances of your business better than you. Next, you need to periodically check if things are moving according to your plan. This will help you in the following ways:
- Know exactly how far you are in terms of your sales targets, cash inflow, and cash outflow in comparison to where you planned to be.
- With the CSR/charity amount ascertained, you will be able to better time your marketing strategies and campaigns.
- Make small amounts of payments in best tax-saving options and towards your retirement over the year, rather than shelling out a larger lump sum at the year-end.
- Effectively utilize the funds for upgradations and expansions.
- Maintain healthy liquidity by timing the incomes more efficiently.
In a similar manner, you need to carry out an in-depth research on the available investment options and analyze the performance thereof to effectively compare them. The results of this exercise will help you know where to invest money to save tax and maximize returns.
ARQ, the proprietary investment engine from Angel Wealth may help you carry out all the required research and comprehensive analysis. It will conduct a complex analysis and present to you the findings in a simplified and comprehensible report, free of human bias.
ARQ also enables you to track the performance of your portfolio so that you may stay atop your earnings thereof on a real-time basis and make informed decisions. Since the application is available on your smartphone, you may monitor the performance of your portfolio anywhere and at any time, as long as you are connected to the internet.