Nothing’s certain but death and taxes, they say. However, for the self-employed, or entrepreneurs in Singapore, the thought of filing taxes on top of a mountain of other things can be daunting. But the consequences of ignoring them are not worth the trouble either. Not understanding or being aware of tax regulations can lead to penalties and missed deductions, meaning entrepreneurs end up paying more than they should.
If you’re a business owner, contrary to popular belief, dealing with your taxes doesn’t have to be difficult. Follow this easy guide to help you to navigate your taxes and even access valuable savings through tax returns:
- What are your obligations?
As a taxpayer in Singapore, you need to fully understand your obligations.
Firstly, you need to know if you fall within the self-employed category. The Inland Revenue Authority of Singapore (IRAS) defines a self-employed person as someone who performs work for others under a contract for service.
The IRAS also states that self-employed entrepreneurs need to report income earned from business operations as business income, instead of salary. This is then counted as part of your total personal income, which is taxed at individual rates.
- Choosing an accounting period
Each year, business owners need to declare business income for a set accounting period, which is typically 12 months. All financial activity that occurs within that period needs to be reported.
However, the start and end dates of accounting periods are not fixed and can vary dramatically among different companies. When you start a business, you need to decide on a period that suits your operations. In Singapore, most firms choose to end the financial year on 31 December and begin on 1 January.
- Keep good records
From the first day you commence operations, it’s important to keep accurate records and accounts of all your business transactions. You are legally obligated to keep records of supporting documents, such as invoices and the cash register tape that records your sales.
It’s also good practice to set up robust systems to ensure these documents do not get lost. You can reduce the risk of that occurring by using accounting software such as QuickBooks Online that records digital invoices, which eliminates the possibility of corrupted or misplaced files.
- Preparing your statement of accounts
At the end of each accounting period, you have to prepare your statement of accounts. This includes your trading, profit and loss accounts, and balance sheet. If you’re preparing your own statement for the first time, look at sample statements such as these or guides which can be found online.
- Making a 4-line Statement
Preparing a 4-line statement is the next mandatory step when filing your income tax return. This is done by gathering the relevant figures from your statement of accounts, including the revenue, gross profit, adjusted profit and allowable business expenses.
Business expenses, or the costs incurred running your business, can be deducted against your income to reduce the amount of tax you have to pay. Needless to say, you should familiarize yourself with allowable deductibles, such as office expenses and employee salaries to make the most out of such tax savings.
- Filing your income tax
Filing your income tax return is the last step. The period for filing generally occurs in the beginning of the year and usually ends by 15 March. The IRAS will send you an individual tax return or notification when it’s time to report your income from business as well as from all other sources, such as rental properties.
That sums up the basics to keep on top of tax as an entrepreneur, from understanding obligations to keeping records and preparing statements. In the whole process of things, don’t underestimate the value of time saved by effective accounting software such as QuickBooks Online.