Income Tax – Don’t Stress Yourself Into an Ulcer this Tax Season

Member feature: by Corné Morrison of Virtually Centered Solutions

 

The tremendous need for finance and tax-related information for sole proprietors and individuals are undeniable! AND with the South African Revenue Services’ need for extra moola to make up for their horrific shortfall (again) in the previous financial year, I’m certainly not going to take any chances with my tax submissions. Income tax is a grey area and a headache for a lot of new virtual assistants, freelancers, and sole proprietors.

Transitioning from employment where all these issues were handled for you by your previous employer’s HR department, to being the Sole Proprietor or business owner responsible for declaring your business activities to the South African Revenue Service can give you an ulcer  – if you don’t know at least the basics.

In this blog, we’re going to take a look at what you should know when you’re first starting out, not just from a pay-Caesar-what-you-owe-him perspective, but especially from an optimization point of view.  I wholeheartedly agree with paying Caesar, but not one cent more than I have to.

 

If you’re 100% Self-employed

#1 Paying Ceasar

So what do you need to pay the proverbial Ceasar, in our case the South African Revenue Service or better known as SARS?

If you’re a sole proprietor (or individual) you’ll first of all need to be registered as a provisional taxpayer. Sole proprietors are personally liable for all business debts and will pay tax according to their personal income tax rate on the profits of their business. Business profits will need to be included in the owner’s ITR12. Lastly, you need to keep in mind that personal income tax works on a sliding scale, which means the more you earn the more tax you’re liable to pay.

Jargon-free this means if you’re a self-employed, work from home individual/ sole proprietor all the income you receive will be taxable because it will all be seen by SARS as profit – except if you’ve got business and/ or home office expenses.

This is the fun part! This is where you can determine which of your business expenses are in fact deductible so you’ll only be paying tax on your actual profit – and not a cent more this tax season!

 

Determining if you can deduct home office expenses

 

Please answer the following questions:

  • Are you employed by an employer?   Answer – No

(Tip: If your answer is yes this section is not for you)

  • Do you work for yourself?  Answer – Yes

(Tip: You don’t work for a company that deducts PAYE  from your income)  

 

The good news is – Yes, you may deduct all your home office expenses.

 

#2 Calculating what is deductible

 

Direct business expenses are 100% deductible.

 

Isn’t that awesome news! That means any expenses that you specifically incur to enable you to do your work is deductible from your taxable income.

 

These type of expenses could include (but are not limited to) the following:

Laptop

Desktop

Monitor (s)

Printer

UPS

Desk

Office Chair

A filing cabinet or other office equipment and furniture (shredder, laminator etc)

Hardware – Internet installation (if it is installed specifically for business purposes)

Internet Wifi Subscriptions

Stationary

Paper

Subscriptions, Software & programmes to manage and perform your work

Repairs & Maintenance (i.e. wifi equipment/ printer/ computer etc

Telephone Costs

 

Home Office Expense – a calculated percentage is allowed as a deduction

 

For this part of the deduction, you need to do a simple calculation.

Office space: Rent, Morgage Bond, Interest

Rates

Water & Electricity

Repairs to the Office

Cleaning Staff Expense

Short Term Insurance

 

Example:

Tumi operates her virtal assistant business from home. For this purpose she has a dedicated area (her study) that serves as her office and is exclusively used for this purpose.

The surface of their house is 240m2.

Tumi’s study/ office surface is 4m x 3m = 12m2

(12m2 / 240m2) x 100% = 5%

The percentage Tumi can deduct for her office space expenses are 5%.

 

For the household:

 

Rent R 7,000.00

Water R    500.00

Electricity R 1,500.00

Cleaning Staff R 2 000.00

Short Term Ins R    400.00

 

Monthly Total for the household – R11,400.00 x 5%  = R 570.00 p.m

 

Tumi may deduct R 570.00 p.m for her office space  

 

In Conclusion

So now that we’ve looked at your deductible business expenses you may realise with a shock that you didn’t keep track of your expenses during the financial year as you should have.

If that’s the case, please don’t deduct any of the expenses which you don’t have supporting documents for when submitting your tax return. Why? Cause SARS just loves auditing these types of returns and to be truthful they’re often flagged for auditing. And it’s definitely not worth it to get flagged cause you didn’t have your paperwork in order!

Rather make sure you set up your business process for your finances so you are not caught unaware again!

 

For more about Corné and how her business Virtually Centered Solutions can help you, please do visit our member page.