This article was first published on 31 January 2020 and has been updated.
If you are a self-employed person such as a freelancer, gig economy worker, property and insurance consultant or start-up entrepreneur, you would not be receiving a fixed monthly salary like workers 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 person.
First and foremost, before you determine your tax responsibilities. If you are working under a contract of service, you are an employee of the company. If you are working under a contract for service, you are a self-employed person.
You might be running your business as a sole proprietor or you might be a partner in a business partnership working with others.
As you are working for yourself or in a partnership 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. Business income must be reported as part of your total personal income.
Identify What Is Taxable And What Isn’t
The next step you should take is to distinguish between taxable and non-taxable income.
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. This is after taking into consideration regular business expenses including medical expenses and research and development costs, and others.
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: income from overseas sources and certain government grants.
Keep Accurate Accounts And Records
As a self-employed person, 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 open a separate your business bank account to distinguish between your personal account. This provides for greater transparency and makes it easier for accounting and tax filing 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 able to get their business account application done in less than 10 minutes using MyInfo. For those without MyInfo, you can also apply online through your personal banking credentials.
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 persons 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) if your revenue is S$500,000 or more.
Common Mistakes To Avoid
When it comes to filing taxes, you would want to minimise any 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 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.
Leverage On Digital Accounting Solutions
You can also consider getting an accounting software – such as Xero – to help with your accounting functions and reduce the need for manual processes. This also helps you access and manage your finances from anywhere with a mobile app, which would have come in very handy for many businesses during the COVID-19 period. Moreover, you can also add staff and/or your accountant to view data without having to manually derive data.
Under the government’s SME Go Digital campaign, to help businesses onboard digital solutions, you can sign up for Xero for free for the first 12 months.
Building a Sustainable Future
Be part of the Singapore Green Plan 2030 and achieve your business’ sustainability goals. Fund your green initiatives today with the OCBC SME Sustainable Financing Framework.
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