Small businesses are more concerned with their survival, and rarely analyse their financial statements. Accounting can serve as a valuable tool, when decisions are made about the business.

But accounting also plays a vital role when it comes to the business taxes. Financial statement information such as profits, assets, inventory are extracted directly from financial statements, and filed with the business tax return.

I will spare you the boring details of the tax completion and filing for a business, and only concentrate on the most overlooked areas in record keeping that impacts on taxes.

If the services of an accountant are procured for business taxes only, he/she will work with information provided. He/she might dig further into the information, but will for the most part tabulate taxes from information at his/her disposal.

One common area costing businesses substantial amounts in taxes, is the erroneous recording or under declaration of assets that should reflect on the business financial statements. The benefit with assets is that the company could be entitled to capital allowances, such as wear-and -tear, installation costs(heavy machinery), and scrapping allowances.The absence or under declaration of the asset, leads to lower tax deductions.

On many occasions, vehicles are used in the business, but registered under the owners name. A simple transfer of the vehicle to the business, could save the company substantial taxes. Since the annual wear-and-tear entitles the business to the appropriate 'write off".

Financial leases are not reflected in accordance with International Financial Reporting Standards, thus creating a problematic tax situation. Say a company enters into a financial lease agreement for machinery , with monthly lease repayments. Finance leases should be capitalised, but most bookkeepers/owners reflect the lease as an expense.The benefit of capitalising the lease, means that an additional tax allowance could be claimed on the depreciation of the machine.The lease payment should also be split according to the "triple entry" accounting method".

Lease Liability                                            Debit
 Finance Charges                                          Debit
 Bank(Payment)                                            Credit

Many tax authorities will allow the finance charges, as an additional tax deduction. From the above it clearly can be observed what the tax benefit to the business would be.The lease payments, plus depreciation, and in some cases the finance charges.

What about the revaluation of assets? How many businesses revalue their assets? Assets are depreciated but unless it is scrapped or disposed it should be revalued. What about that oak desk that your grandfather purchased in the family business for $2.00 in 1940? Nobody in his/her right mind would suggest that the desk is worth nothing. In fact that desk could have a value, more substantial than your latest office desk. That desk should be revalued higher than the cost price. Revalued assets also entitles the business to higher depreciation tax write offs! And scrap the asset if there is no further use for it, and claim the scrapping allowance.

Other assets such as computers or printers, should never be registered in the owners name, if it is meant for the business. All assets used in the business should be recorded in a fixed assets register, providing columns for purchase dates, Cost, revaluation, depreciation, Assets disposed/scrapped book value, and importantly, its tax value!

Proper asset recording, read assets register, is overlooked by many small business bookkeepers. Thus leading to higher tax assessments.

Sean Goss
Small Business Consultant
website: http://www.sgafc.co.za

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