Guide To Understanding Your Tax Obligations As A Self-Employed Individual

If you are a self-employed professional such as a freelancer, gig economy worker or start-up entrepreneur, you would not be receiving a fixed monthly salary like workers who work in a regular company. However, just like everyone else who is working in Singapore, you still have to file your personal income taxes based on the income that you earn from your self-employed profession.

In this article, we will explain what you need to know when it comes to meeting your tax obligations as a self-employ individual.

Know Thyself

First and foremost, before you determine your tax responsibilities, you should ascertain whether you are an independent owner running your own business or a freelancer working as a contractor for companies that are not your own. 

If you are working under an employer, you are an employee working under a contract of service.

Nonetheless, if you offer services for others in return for fees, you are self-employed under a contract for service. As you are working for yourself in the form of buying and selling goods or the provision of services, you can attain a profit or incur a loss for your business. You might be running your business solo as a sole proprietor or you might be a partner in a business partnership working with others. 

Identify What Is Taxable And What Isn’t

Once you have confirmed that you are a self-employed person, the next step you should take is to distinguish taxable items from non-taxable ones. 

A simple rule of thumb is that whatever income you earn or collect in the form of your self-employment such as the earnings that you made, government grants that you get or income received from a business partnership are taxable. 

On the other hand, items that are tax-exempt for you as a self-employed professional (whether you are a sole proprietor or a business partner) include but are not limited to: research and development costs, regular business expenses, medical expenses and capital allowances.  

Keep Accurate Accounts And Records 

As a self-employed professional, be sure to ensure all your business transactions are properly kept for record-keeping and accounting purposes. 

Business records include income records such as invoices and refunds issued to customers, receipt books and credit notes for returned goods, purchase records such as cash receipts and payment vouchers, records of business-related asset/stock transactions as well as other miscellaneous business records such as accounting schedules and bank statements.

It also make sense to be separating your business bank account from your personal account for greater transparency and easier accounting purposes. Starting a business account is simple and banks like OCBC are able to provide online account openly instantly, with both existing and non-OCBC customers can get their business account application done in less than 10 minutes using MyInfo. For those without MyInfo, they can also apply online through their personal banking credentials.

Read Also: Guide To Opening A Business Account For Your Start-Up In Singapore

As you manually or electronically track all your business records, be sure to keep source documents to supplement your records of business transactions. 

The Income Tax Act requires self-employed individuals to keep business records for a minimum period of five years, hence be sure to conduct your due diligence by recording everything accurately.

As of 2014, if you are operating a small business with business assets which is less than S$100,000 at the end of the most recent financial year as well as when you have an annual revenue of less than S$100,000 for the past two financial years, you are only required to keep business records like listings and registers while you need not keep records of source documents such as invoices and receipts. 

When You Are In A Partnership

If you are a precedent partner in a partnership (when your name is the first among all business partners in Singapore to be named in the partnership agreement or when other partners have agreed to nominate you as the precedent partner), report your business income in Form P. 

Otherwise, confirm with your precedent partner on your share of income in the business partnership and report your income/loss in Form B under “Partnership” in the “Trade, Business, Profession or Vocation” section. 

You can declare your income in a 2 or 4-line statement (depending on your revenue). If you earn less than or equal to S$100,000 in revenue, file a 2-line statement indicating your revenue and adjusted profit. If you earn more than S$100,000 in revenue, key in your revenue, gross profit, adjusted business expenses, adjusted profit/loss by the 4-line statement. You also need to include a certified statement of accounts (such as a Profit & Loss Account and Balance Sheet) should your revenue equate to or exceed S$500,000. 

Common Mistakes To Avoid 

To err is to human. Yet, when it comes to filing taxes, you would want to minimize any room for error because mistakes such as understating your income or inaccurately mixing up your personal expenses with your business expenses are costly in terms of time, effort and may even affect the credibility of your business should IRAS investigate your discrepancies. Worse still, if you fail to keep your business records for at least five years, you will encounter problems when IRAS decides to audit your income and business expenses. 

For more details, check out IRAS’ website or dial their number at 1800-356 8300.

All the best in filing!

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