Taxation law is a complex and in-depth area of concern for the small business owner.  With potential pecuniary and criminal consequences, it is of paramount importance to ensure as a business owner, you are familiar with the tax consequences in your jurisdictions, and the ways in which you can minimise your liability.  Whilst one of the most legally important things to understand as a small business owner, taxation law also provides an excellent opportunity for saving money and increasing profitability within a small business environment.  In this article, we will look at some of the main and most common tax implications of running a small business, and some of the most effective ways of ensuring you pay less tax through your small business operation.

Tax regimes vary from jurisdiction to jurisdiction, and the implications of running a small business also vary, both in terms of the legal and financial requirements.  Having said that, there are a number of common elements that transcend jurisdiction and appear in numerous guises across various systems that can be of use to the small business owner.  One of the first things to consider as a small business owner is to establish a limited liability company.  The primary reason for this is that limited liability companies usually provide a more relaxed tax regime as compared to income tax liability.  A sole proprietor operating out-with the parameters of a corporate entity is liable to account for profits as income, which can lead to a greater tax liability and potential individual state contributions.  As a corporate entity, the owner can pay himself via share dividends, which carry a lower tax liability and thus minimising his overall liability to tax.  This is significantly better than paying oneself a wage, which bears the tax liability from both ends, i.e. the company is liable to taxation as is the employee.

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