What is a Tax Diagnostic?

Tax diagnostic for individuals

A tax diagnostic is an all-encompassing review of your past, present and future tax affairs. Because tax is always evolving and tax laws are constantly being amended, a diagnostic review affords taxpayers the opportunity to get a fresh set of eyes on their taxes.

If there are any inconsistencies or areas of non-compliance based on a taxpayer’s unique circumstances and their profile, the tax diagnostic will reveal it. By analysing past tax returns, separate transactions or group transactions of the current tax year, a specialist tax practitioner can glean enough information to assist with filing your next tax return, as well as restructure your taxes going forward.

Tax diagnostic for companies

As with personal tax, a tax diagnostic will offer insight and clarity on past, present and future financial decisions affecting the company’s tax position. Especially where you are unsure if the company is tax compliant or not, a thorough tax diagnostic will provide an updated snapshot of the company’s financial health and its tax situation.

A deeper analysis of asset depreciation, inventories, payroll taxes, the relationship between salaries and dividends, as well as pension and profit-sharing plans, could help employers to restructure their business where needed, or facilitate expansion plans.

Whether a business or an individual, a tax diagnostic offers many advantages. Besides providing an evaluation of the overall health of their finances, it could:

  • disclose their tax law compliance status
  • reveal unnecessary exposure to taxation
  • help mitigate tax risks, such as unforeseen debts or penalties
  • create tax savings opportunities for the future

Future tax planning

A tax diagnostic must therefore be viewed as an opportunity for you as a business owner or taxpayer to distance yourself from your company or your personal finances and to get an objective helicopter view of your tax affairs. It is so much more than a fact-finding exercise because the findings can be incorporated and applied to all future planning.

Due to the technical aspects of a tax diagnostic, it should be performed by a professional tax practitioner or attorney with a sound knowledge of the most recent changes to tax legislation. If serious discrepancies are uncovered during the tax diagnostic process, you want a consultant who can assist with engaging SARS in legal communication to help mitigate further exposure to potential tax liabilities.

Article: Tax Consulting

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