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Incorporated versus sole prop for a new business

Posted 4 September 2013 under Tax Questions



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Hi Tim. I am about to embark on a new venture and start up my own business. We are bound by various rules and regulations as per the HPCSA and are only able to practice in an incorporated or solus practice. I am feeling very unsure as to which is the best option tax wise? The gross monthly income of the practice is expected to start off at and vary between R30 000 and R50 000 per month. I will not have any partners or permanent employees. I work from home 50% of the time and am onsite (travelling) the remaining time. Your advice would be much appreciated. Thank you!

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TaxTimTaxTim says:
5 September 2013 at 21:37

Can you tell me what you anticipate your annual net income will be?


Roz says:
6 September 2013 at 6:37

As an employee earning R30k per month your annual net is approximately R288k after tax. What I am unsure of is what I can deduct for eg medical aid, room rentals, stationary, phone etc and whether the decision will be dependent on this or vice versa?


TaxTimTaxTim says:
8 September 2013 at 23:42

You would be able to deduct all business related expenditure which contribute to earning that income, so yes things like stationery, phone, rental of premises etc. Medical Aid would be a personal claim against your tax affairs.

The choice between the sole prop and a Pty (Ltd) would depend on the turnover and profit and the number of staff you expect to have. If it is just yourself performing the work then if your overall taxable income/profit for the year (including everything both personal and business) is less than about R350 000 then it is not worth setting up a company as the tax rates are higher and the administration is cumbersome. Based on the amount you are suggesting it would be best to keep in a sole prop.


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