Starting your own business is exciting and probably a little daunting, but it also comes with more tedious aspects that have to be organised, like tax. While you’re probably eager to launch your service or product into the market, you’ll first have to take care of the admin to make sure your business adheres to legal requirements.
The first tax hurdle you’ll face is whether to operate as a sole proprietor or as a private company (PTY Ltd). The biggest deciding factors for many businesses are the long-term tax implications. You should choose a legal structure that will comply with SARS requirements, while also helping you maximise your income and minimise your tax burden and personal exposure to risk.
As a sole proprietor, your business will be run and your profits will be taxed under your personal name, using your current income tax reference number, says Johan Swart, tax manager at Legal and Tax. You’ll be required to make provisional tax payments in August and February, and will have the option of making an additional payment in September. ‘When you file your tax return for the year, these payments will be deducted against your tax liability as calculated in your annual assessment,’ says Johan.
As a sole proprietor, you’ll be able to deduct legitimate business expenses from your total taxable income for the year, as with any other business. This means you’ll h