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Tax – Expenses Allowable For Deduction From Profit In Nigeria

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Tax - Expenses Allowable For Deduction From Profit In Nigeria

 

Companies in Nigeria are statutorily required to pay 30% of their taxable profit as company income tax. However, before that tax is paid the tax authority provides steps that must be followed before the tax is computed. The steps include adding back to profits expenses that are not admissible as deductions and deducts expenses that are admissible for deductions. Deductions made before computing taxable profit are those expenses (allowable expenses) that the tax authority allows as admissible for deductions from your profit. Allowable expenses help reduce the amount of tax you pay and as such it is very important to take advantage of them. This is a list of allowable expenses;

Allowable Expenses

  • Expenses that are wholly, reasonably, exclusively and necessarily incurred for the purpose of the business
  • Interest on loan for the purpose of trade or business
  • Rent of accommodation of employees provided it does not exceed the basic salaries of the employee
  • Contribution to pension fund approved by the Joint Tax Board
  • Provision of doubtful debts of a specific nature
  • Bad debts written off
  • Legal Expenses limited to General Legal Advisory services, Renewal for short lease, retainer fees, any legal cost incurred in protecting or defending the business.
  • Rent and premium in respect of land and buildings occupied for the purpose of the business
  • Donations that meet the following conditions; 1. It must be made out of profit 2. it must not exceed 10% of chargeable profit 3. it must be made to bodies listed in schedule 5 of the Company Income Tax 4. It must not be capital in nature
  • Director’s fees not exceeding N10,000 per annum for a maximum of 3 directors is also allowable

Disallowable Expenses

  • Depreciation expenses
  • Any contribution to a pension fund not approved by the Joint Tax Board
  • Any provision for doubtful debt of a general nature
  • Capital Expenditures
  • Legal Expenses including; 1) Cost of acquiring a new lease 2) Cost of renewing a long lease 3) Cost of defending a traffic offence 4) cost of defending a tax appeal 5) stamp duties on increase in capital
  • Any withdrawal of capital
  • Income Tax provision
  • Fines and penalties
  • Pre-operational or preliminary expenses
  • Any sum recoverable under an insurance or contract of indemnity
  • Any sum reserved out of profit

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

2 Comments

2 Comments

  1. Charles Oyeshomo

    March 27, 2017 at 8:35 pm

    Hello, is this still relevant? Thank you

  2. Charles Oyeshomo

    March 27, 2017 at 8:36 pm

    Hello< are these deductions still relevant. Thanks

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Personal Finance

The best free budgeting tools to help you manage your finance

In this list, we compile the most effective, free online budget tools you can find in any region with a good internet connection.

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Money apps for professionals

The whole point of budgeting is to manage your resources and increase savings. Paying through your nose for a course, device, or material to help you properly budget your resources, makes the whole process a bit of a joke.

Also, you do not want to use a budget tool that gives absurd reports and sends you into waves of anxiety. Budgeting requires that you have a clear head; anxiety doesn’t allow that. According to Leslie Wayne, the primary and only principle of budgeting is, “do not go over budget”. Paying huge sums for a budgeting tool already flouts this rule.

Some of the most affordable forms of budgeting are the most traditional methods, the earliest forms. Using a Paper and Pen to make your scale of preference and plan your expenses solely on significance or relevance. The only shortcoming of this method is that you could lose your pen or notepad. The other method is “The Envelope Method”. Using several envelopes, you allocate your financial resources to your needs.

This helps you not to overspend.

Microsoft Excel and Spreadsheet also have templates for budget planning. That way, you get to create a database to track your expenses. Some Financial institutions also provide online tools for budgeting, check the banks within your region for options.

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The best free online budgeting tools 

The most credible budgeting tools in this time are those found online—some of them with AI integrations to aid you. Unlike ten years ago, there are lots of online tools in the market. Some affordable, some free, some expensive, some effective, and others total bad investments. In this list, we compile the most effective, free online budget tools you can find in any region with a good internet connection. Not only do they help you plan your budget, they’re easy to operate too.

Some of these free budgeting tools are;

Mint

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Mint brought about the birth of online budget tools in 2006. Not only has Mint lasted for so long. They’ve successfully helped over 20 million users plan their financial resources, without pain or fear.

The platform links all bank accounts to your Mint account and updates your budget automatically, with every withdrawal or deposit. It has a system that helps you analyse your expenses at time intervals, based on your spending history and financial statement. There is also a menu that allows you to create a debit card bill payment plan.

MINT is an online budgeting tool and is also available on Windows, Android and iOS platforms.

PocketGuard

PocketGuard is an online application that helps you plan your finances. It also connects your financial accounts to your budget accounts. The developers of this tool, realize the dangers associated with sharing your bank details and have created encryption that protects your data from third-party agencies. Pocket Guard analyses your bills, debts, other payments and suggests ways through which you can save more.

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Personal Capital

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Personal Capital is one of the most efficient budgeting tools. It doesn’t only help you plan your budget; it helps you with investment plans and also manages your retirement account. Although registration and the use of the budgeting tools are free, the investment tracking option on Personal Capital requires users to pay a token. One per cent of every successful investment.

For individuals who would prefer a platform that grants them the opportunity to manage all their finances and investments on one page, Personal Capital is their final call.

Unsplurge

Unsplurge, unlike the previous budgeting tools on this list, helps you to manage your finances for a particular goal, in contrast to the other general-purpose budgeting. Unsplurge helps you to save up for a specific investment, property or pleasure.

Besides helping you keep track of your savings and spending. The application also gives you viable suggestions using your finances as a yardstick, to help you boost your savings.

SavvyMoney

For those looking for a viable method to effect down-payment of debts and boost savings, SavvyMoney is the most suitable platform to aid them.

The fundamental idea is that you aim to understand your present financial situation and the deeds or misdeeds which have placed you there. After carefully analyzing your financial status, you create a plan for repaying your debts, putting into consideration your income and expenditure.

SavvyMoney helps you stay up-to-date with your progress and also keeps you from derailing. It also gives viable information and suggestions to boost your payments and ease you off the financial stress.

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Wally

Wally is primarily, secondarily and ultimately a budgeting tool. The functions of this platform are solely based on financial and resource budgeting. Although the functions of Wally are limited compared to most online budgeting tools, it tracks income and expenses efficiently. Wally is completely a cost-free app, which grants users the opportunity to track their costs either by typing them into the blanks provided or taking photographs of receipts.

Wally provides notifications for bills due for payment, saving goals, and other milestones in the platform.

Similar to most online budget tools, Wally offers applications for Android, iOS and Windows users. Wally is free from all sorts of payments and allows for a wide variety of foreign currencies.

Simple

Simple is more than just another free online budgeting platform. It does more than manage your budget. It is also an electronic banking platform that can substitute for your traditional bank account. Its banking option allows for more effective interactions between your bank operations and your budget.

Simple offers a safe-to-spend feature that lets users know when they can make extra expenditures asides from the ones previously included in the budget. Also, it contains a savings feature that encourages users to continue saving.

Simple is an all-around financial management app, that allows you to track your bank account, budget and savings on the same platform.

It is free to use and available for all digital devices.

In conclusion, regardless of what budgeting tool or platform you decide to use, the main principle of budgeting remains, “do not go over your budget”. Effective budgeting and savings is a step forward to financial independence.

When sourcing for budgeting aid, look for the ones which suit your planning style and provides you with seamless service.

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Personal Finance

How to build solid financial success system and achieve financial freedom quickly

These are the three systems you need to speed up your financial success by almost 20 times.

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Financial system and freedom

The majority of people I know want to increase their financial success. If this is also what you want to do, you need solid financial systems.

What systems do you need and how do you increase financial success especially if you are stuck in a 9-5 job? In this article, I will show you exactly what to do.

To increase your financial success, there are three systems you need. These systems determine how fast or slow you achieve financial freedom and are explained below.

Multiple Income System

This is the system that brings in massive money into your life. It comprises 3 main components – quality of your main income, source of your income, type of income.

The quality of your income can be high or Low. It is high if your main income gives you the ability to save more than you spend. It is low when you can only spend more than you save. High-quality income is the only type of income that can make you rich.

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The second component of the multiple income system is the source of your income and there are two types – the one source income and multiple source income. The key to fast-tracking your financial success is to upgrade your source of income from one to many.

The third component of the multiple income system is the type of income you earn. There are two types of income – active income and passive income.

When you earn only active income or have a weak passive income, you limit your chances of financial success. True success is created when you have a strong active income and a strong passive income. You accelerate your financial success when you depend on passive than active income.

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These are the three components of the multiple income system. When you have all three components working for you, you accelerate your financial success by almost twenty times.

So, now that you know the first system for fast-tracking your financial success, let’s look at the second system.

Money Preservation System

Earning extra income is just one step in the financial success process. What truly creates wealth is the income that you keep. True riches are created when you keep more income for yourself.

Unfortunately, this is rarely the case. Most people are only keeping leftovers for themselves. They are enriching others through their spending and getting poorer and broke every day. To achieve financial success, you must preserve more of what you earn. To succeed with preserving income, you must maximize two key components – the savings component and investing components.

READ: Billionaires that can triple the value of Bitcoin

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The savings component works best when you save big portions of your income every month and investing your savings to produce solid passive income. To save big portions, you must strive to increase your savings by 1% every month. You must also try to maintain a low maintenance living standard.

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The second thing to do to preserve your income, is to ensure that money saved and invested is never lost. Losing money through unguided investment decisions is not wise. To achieve financial success, you must invest to preserve your savings.

So, now that you know the second system that can accelerate your financial success. Let’s look at the third system.

READ: Ripple adds Bank of America to payment network

Money Multiplication System

The money multiplication system is the system that enlarges your wealth. There is a limit to which savings and investing alone can make you rich.

This is because they are heavily dependent on your own direct effort. To create massive wealth, you need to move beyond your effort and create systems that can enlarge wealth even in your sleep. To create this kind of system you need one critical component –  Leverage.

READ: $385 million worth of Bitcoin moved by unknown identity

What is Leverage?

The best way for me to explain leverage is to use the example of a school Teacher and a movie star. A school teacher solves the problem of ignorance through education and a movie star also solves the problem of ignorance and boredom through education and entertainment.

Both teach their audience something about themselves or other people, that they do not know before. A teacher delivers her services by standing in front of a few students and is confined to a classroom. Every day of her life she does the same thing, teaching the same materials to different kinds of students.

READ: Nigeria generates N416.01 billion from Company Income Tax in Q3 2020

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Without her presence, her work cannot be delivered, her time is blocked. She is cut off from the wider society and can only earn income from her direct effort. Although, the teacher arguably provides higher perceived value than the movie star, she lacks leverage and her income is limited by it. This, therefore, means that you can provide enormous value and still not be rich. Value alone does not lead to wealth. It is value and leverage that creates massive wealth.

The movie star in contrast has massive leverage. He shoots a movie in some remote town unknown to the audience. He invests weeks, months, and sometimes years producing the movie. But, once produced, he never has to do the same movie over again. The movie produced is distributed all over the world. He is seen on all the media platforms, in theatre, television, and DVDs.

READ: Top passive income strategies using Cryptocurrencies in Nigeria

His movie is watched by billions of people. He is able to build a solid fan base and is patronized from all over the world. A movie star works once and is paid for a lifetime. It is the long-lasting and far-reaching value of the work of a movie star that makes him richer and wealthier than the classroom teacher. Thus, even with little perceived value, a person can create massive wealth with the right leverage.

Leverage is thus the ability to work once and be paid for life. It also the ability to do it in one place and spread it all over the world. The tools that make leverage possible is the right relationships, the right media platform, and the right distribution system. If you do not build your own leverage system, there is a limit to how much money you can earn.

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So, these are the three systems you need to speed up your financial success by almost 20 times. Perhaps, you are thinking to yourself how do I build these systems and where do I start. If this is you, we can help. We will help you build these systems and accelerate your journey to financial success. If you need help, send an email to [email protected]


About author

Grace Agada is the Senior Financial Happiness Director at Create Solid Wealth. She is an Author and Column Contributor in six National Newspapers. She is a contributor at BellaNaija, Nairametrics and Proshare. She is on a mission to help working-class professionals and CEOs become more financially successful. To learn more about Grace and how she can help you, send an email to [email protected]

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Personal Finance

Must-do things after you finally become debt-free

Now you are finally debt-free, these next steps will help you make sure you never fall back into debt again.

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So now that you are debt-free what next? Remember that clearing your debt is just one part of the exercise; staying out of debt is vital to ensure that you don’t end up in the same financial injury. Living debt-free is not rocket science. All it requires is the consciousness that healthy finance is essential for you to live a happy life.

You may want to check out our previous articles 9 Brilliant ideas to pay off debt fast in 2021 and How to get out of debt: A step-by-step guide where we discussed extensively how to find your way out of debt.

Outlined below are some things to help you live debt-free; have a good read.

Make a list of your income and expenses

The first thing to do to ensure that you don’t fall into debt is to plan. Planning is such a vital step to success for anything we want to do in life. Indeed, if you don’t want to fail, you cannot neglect to plan. This doesn’t have to be complicated in any way. It’s as simple as you putting down words and figures. The first step in this process is making a list. You need to see on paper, what your finance looks like. It may not seem like such an important thing to do, but it is necessary. Making this list, all you have to do is write out what you earn on one side. If you have different streams of income, put it all on paper. Then, write out your expenses on paper, everything you know you spend money on monthly. Depending on when you receive your incomes; you can make it weekly or bi-weekly. Just compare how much is coming in against how much is going out.

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Create a budget plan

The next step in the planning process is to create a budget. Based on your analysis from the step above, you should assign every dollar/naira you earn a task. You cannot afford to be passive with your money, give them work to do. They are available to make life easier for you right, but if you don’t tell them what to do, they cannot help you achieve that. You have to understand also; depending on what the ratio of your income to expenses is, you might need to make certain adjustments. In fact, if you want to stay out of debt, you NEED to make those adjustments. This step is not as difficult as you may think, if you do not know how to go about this process of creating a budget, you can use a budgeting app to make it easier for you. There are so many choices out there so you must choose wisely because your financial needs may be different from your neighbour’s.

Be intentional about your money

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This tip can be summarised into the first two steps already outlined. But it is such an essential factor that deserves special attention. Intentional merely is being deliberate in your actions. Therefore, being intentional about your money requires that you don’t leave anything to chance. Conscious money habits will ensure better financial health and keep you from running into debt. So, as basic as the first two steps might seem to you, you really cannot neglect them.

Do not make purchases based on emotions

It is very easy to spend to make ourselves feel better. The painful truth is that the things you buy won’t make you feel better. They cannot take away that feeling, because when the initial gratification has waned, you would still be left with that emptiness you were feeling in the first place.

Unsubscribe from sales emails

Everybody likes to get the first updates for those juicy deals and grab them as they come. If you have not planned for it, please don’t do it. You have to unsubscribe from emails that make you spend more money. Remember that the person sending those emails wants to make money. You do not need to place that instant ordering; turn it off.

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Maintain a good credit score

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Remember when we talked about how to stay out of debt; one of the tips offered was to negotiate lower interest rates. Having a good credit score qualifies you for lower interest rates. More than that; having a good credit score grants you more negotiating power, better insurance deposits, easier approval for loan requests, it also affords you higher credit limits. Overall, having a good credit score places you on better standing than having a bad one.

Do not tie up your money in illiquid investments

As necessary as an investment is, you must engage in those with high liquidity as opposed to illiquid investments.

Earn more money

There is no human on this planet that this idea will not be appealing to. We always want to have more money, no matter how much we already have; it’s in our nature. The simple ways to earn more money is to get a side hustle, become a freelancer or contractor; use your skills to make money. With unlimited access to technology, the world of work offers more opportunity than ever for anyone to turn their skills into pay.

Staying out of debt can be summed into these few words; “Live within your means”. The way to ensure that you do that is by planning. Be intentional about your money. Life can happen at any time but even when it does, with a proper plan already in place, you will be better equipped to handle unforeseen circumstances than when you don’t even know where your money is coming from.

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