If you're starting a new company, registering as a Partnership is one option you can consider to save on your tax bill.
Continue reading to find out what a Partnership is and the six tax benefits of registering as one.
Before we get the tax benefits, take a look at what exactly a Partnership is
is where two or more people pool their finances, assets and skills to start a business venture.
You and your partners draw up a Partnership agreement to spell out how you'll run your affairs.
And you'll reap the following tax benefits…
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1. You don't have to register the Partnership separately for income tax
Six tax benefits of registering as a Partnership
There's no difference between your tax affairs as an individual and your business interests.
Everyone in the Partnership just needs to disclose their partnership income and expenses. They must do this on their private income tax return. They need to state the percentage that applies to them.
2. There's no need to submit Annual Returns to CIPC
This saves you money.
3. You don't have a legal duty to use an accountant to do your books or conduct a full audit
All you have to do is keep proper accounting records, especially if you're going to register for Vat.
4. Your Partnerships' income and expenses are included in your personal income tax calculation
The Practical Tax Loose Leaf Service
adds that, before the income is taxable, you can deduct your retirement annuity contributions, income protection contributions (until 1 March 2015), deductible portion of medical expenses and deductible donations. You can offset medical tax credits against your tax.
5. You work out the profit of the Partnership and then share it as partners
You must do this in line with the percentage you agreed on. SARS will then tax you on your own percentage of the profit.
6. Each partner is entitled to the personal tax threshold
(at least the first R70 700 of your taxable income is tax free.)
This means, each partner gets a capital gains exemption of R30 000 in their personal capacity.
Now that you know the tax benefits of registering as Partnership, check out the Practical Tax Loose Leaf Service.
In it you'll discover three things you should consider before you decide to trade as a Partnership.