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8 Mistakes to Avoid When Filing Self-Employed Income

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MistakesBeing self-employed has its own charm. The benefits are many, starting from being your own boss to flexible work timings, there are no limits to what self-employment can bring to the table. However, this independence comes at a cost. Self-employed people usually have to face more of record keeping and have to remain on top of the Singapore tax filing deadlines. They have to wear more number of hats; in simple words, they are their business. The only aspect that they need to remember is to avoid becoming ‘penny wise dollar poor’, when dealing with Singapore taxation rules.

The Singapore tax & accounting needs of a self-employed person is different from that of an employee working in a company. Singapore personal income tax for a self-employed individual is levied on their net income i.e. the amount that remains after deducting the business expenses from their gross revenue. IRAS is the authority in Singapore that looks after the tax filing for the self-employed. Let us quickly have a look at the mistakes that need to be avoided when filing your taxes, if you are self-employed.

1)      Filing your trade income wrongly, as ‘employment’ or ‘trade income’ – If you are a freelancer, property agent, insurance agent, private tutor, hawker, remisier or a commission agent, then you have to file your taxes as a self-employed person. You have to declare the income as trade income under item 3 ‘Trade, Business, Profession or Vocation’, in case you are filing your Singapore tax online. If you are paper filing, then you need to fill Form B: items 6 to 9 on page 2.

2)      Not declaring commission income in the tax return – You have to declare all types of commission income in the ‘Trade, Business, Profession, or Vocation’ section.

3)      Filing estimated income due to improper record keeping – You will have to save all your documents and records at least for time span of 5 years. All the invoices, receipts, vouchers, bank statements should be kept properly to ratify your purchases and expenses.

4)      Claiming the expenses of use private vehicle / traveling – Under no means private transport expenses should be claimed from deduction in the income tax. Expenses incurred during the use of private car even for business purposes should not be included. If you want to claim the expenses, you need to have proper proof that indicate the date and destination of travel, mode of transport, person incurring the expense, purpose of travel and the total amount incurred.

5)      Claiming ‘salary’ or ‘fees’ paid to the partner as expenses – You cannot consider it as an expense for tax deduction purpose, they need to be treated as business drawings.

6)      Filing estimated amount of ‘entertainment expenses’ or ‘gifts’ –  All the supporting documents that indicates the date and place of entertainment, name of the person(s) entertained, purpose for entertainment, person incurring the expense, total amount incurred, name, identification and capacity of person(s) receiving the gift and the reason(s) gift was given, has to stated clearly with supporting records.

7)      Claiming private expenses as business expenses – Claiming private expenses like medical, life insurance premiums, study course fees and expenses incurred on staff for business purposes for tax deduction purpose is strictly prohibited. Only business expenses should be filed, otherwise you may incur penalties.

8)      Claiming previous year’s CPF amount for Self-employed CPF relief – The IRAS has made a provision wherein, CPF relief for the self-employed in automatically sought. There is no need to make a mention of it in Form B.

There is one more mistake that adds to the above list; filing taxes on your own. You can free yourself of all the above given hassle by hiring a Singapore taxation firm.

We can help you with the sound advice for Singapore taxation. Please feel free to contact us on +65-6536 0036 or send mail at info@accountingservice.com.sg