How do I file annual tax returns?
My company is a limited liability company and I was told to pay tax for the state government before it’ll be filed to the federal. How do I know how much I’ll pay in tax?
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How do I file annual tax returns?
My company is a limited liability company and I was told to pay tax for the state government before it’ll be filed to the federal. How do I know how much I’ll pay in tax?
Imagine you have a beautiful garden where you grow different vegetables like tomatoes, okra, and peppers. Just like your garden, a limited liability company (LLC) is like a special garden where you plant your business.Now, filing your company's annual tax returns is like checking your garden at theRead more
Imagine you have a beautiful garden where you grow different vegetables like tomatoes, okra, and peppers. Just like your garden, a limited liability company (LLC) is like a special garden where you plant your business.
Now, filing your company’s annual tax returns is like checking your garden at the end of the farming season. You need to gather all the information about your harvest, which in this case is your company’s income and expenses for the year.
Since you were told you have to pay tax to the state government before filing with the federal government, let’s break it down like this:
Imagine the state government as the first market you visit to sell your tomatoes. You need to find out how much each state tax (like VAT or PAYE) is on every basket of tomatoes you sell. This tax amount varies per state, just like the prices of tomatoes can vary from one market to another.
To know how much tax you will pay in total, you need to calculate the total income your company made for the year. Subtract the allowable expenses like seeds, fertilizers, and tools you used in your garden (or business expenses like salaries, rent, and utilities) from this total income to get your taxable income.
Next, apply the corporate income tax rate set by the state government to this taxable income to find out how much tax your company owes the state. It’s like determining how much of your tomato sales go to the state government as tax.
Only after you have paid the state tax can you move to the federal market. At the federal level, you will report your income, expenses, and the state tax already paid. The federal government will apply their tax rate to the remaining taxable income to calculate the federal tax your company owes.
In this way, you ensure that each level of government gets its fair share in your business harvest just like different markets get their share of your vegetable sales. Remember to keep proper records of your income and expenses to make the filing process smoother.
So, by understanding how much your company made, deducting allowable expenses, and applying the tax rates correctly, you’ll know how much tax you need to pay at each level before filing your annual returns. Just like you tend to your garden diligently, maintain accurate records, and seek advice from a financial professional to make sure you comply with all tax requirements.
See lessFiling your taxes as a limited liability company (LLC) requires keeping two completely separate tax baskets in mind: State Government Taxes and Federal Government Taxes. What you were told is standard. Before your company can file its Company Income Tax (CIT) to the Federal Government, it must fulfiRead more
Filing your taxes as a limited liability company (LLC) requires keeping two completely separate tax baskets in mind: State Government Taxes and Federal Government Taxes.
What you were told is standard. Before your company can file its Company Income Tax (CIT) to the Federal Government, it must fulfill its employer and state-level tax obligations.
Part 1:
How Much Will You Pay in Taxes?
As an LLC, your tax rates depend entirely on your Annual Turnover (Total Revenue/Sales): [
i) State Government Taxes (Paid to State IRS, e.g., LIRS, FCT-IRS)
The state government does not tax your company’s profits; instead, it taxes the individuals associated with the company.
PAYE (Pay-As-You-Earn): If your company has employees (including yourself as a Director), you must deduct tax from salaries monthly and remit it. This follows a progressive scale from 7% to 24% based on individual income thresholds.
Direct Assessment / Minimum Tax: If you operate as a single-director company without a formal salary structure, the state will assess you as an individual business owner for personal income tax.
State Levies: Minor payments like Development Levies (usually ₦100 per employee annually) and Business Premises Levies.
ii) Federal Government Taxes (Paid to the Nigeria Revenue Service – NRS/FIRS)
Federal tax is charged on your company’s Net Profit (Revenue minus allowable business expenses). It is broken down by company size:
Company Size Annual Turnover Threshold Federal CIT Rate
Small Company Under ₦100 Million 0% (Exempt from CIT, but
filing is still mandatory)
Medium & Large ₦100 Million and above. 30% of Taxable Profit
Company
Note: All companies, regardless of size, are subject to Education Tax at 3% of assessable profit.
Part 2:
Step-by-Step Filing Action Plan
To clear your tax history and file correctly, follow these sequential phases:
Phase 1:
Clean Up the State Requirements
Register on the State Portal: Create an account on your State Internal Revenue Service platform (e.g., LIRS eTax for Lagos or FCTIRS for Abuja).
File Employer’s Annual Returns: Upload a schedule of all employees, their salaries, and the PAYE taxes deducted over the last year. Deadline: January 31st every year. Once state debts are cleared, apply for your personal Tax Clearance Certificate (TCC).
Phase 2:
Compute and Prepare Corporate Accounts
Draft Financial Statements: Gather your revenue, operating costs, and asset registers. Small companies can use simple signed accounts, while larger ones require audited financial statements.
Calculate the Taxable Profit: Separate your non-allowable expenses (like personal drawings) from valid business expenses to find your exact taxable profit.
Phase 3:
File to the Federal Government (NRS)
Log into the Platform: Access the official taxpayer portal (such as the NRS Rev360 portal) using your corporate Tax Identification Number (TIN).
Complete Self-Assessment: Navigate to the “Self Tax Filing” section and fill out the CIT forms using your prepared financial schedules.
Submit and Pay: Pay any calculated tax liability online via the portal and download your final electronic receipt and filing acknowledgement.
Deadline: Within 6 months of your company’s financial year-end.
Hidden Risks to Watch For
Late Penalties: Missing the federal CIT filing deadline triggers an immediate ₦100,000 fine for the first month and ₦50,000 for each subsequent month of default.
Corporate Affairs Commission (CAC): Remember that filing Tax Returns with the revenue service is completely separate from filing Annual Returns with the CAC to keep your corporate registration status active.
If your transactions are highly complex or you fall into the medium-to-large business category, it is strongly recommended to engage a licensed tax professional or chartered accountant to review your calculations before final submission.
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