Self-employment is freeing. Being your own boss allows you to earn more money, and control the resources and growth of your business. But it also requires further diligence on your part. self-employed persons need to maintain strict accounting measures to avoid costly mistakes when filing self-employed income.

Singapore requires all self-employed individuals to pay taxes on the net income of their business.

Net income can be derived from subtracting business expenses from the company’s gross revenue. Filing taxes on your own can lead to costly mistakes when dealing with the IRAS. The most common mistakes are:

1.     Filing Estimated Income

Improper record keeping can lead to immediate and future tax concerns. Proper record keeping is essential when running a business – small and large. It’s recommended that all business keep the following documents for a period of no less than 5 years:

  • Invoices
  • Receipts
  • Bank statements
  • Vouchers

Proper record keeping is a must for all Singapore businesses.

2.     Not Declaring Commission Income

Your tax return must include any and all income derived from commission. The income must be listed in the Trade, Business, Profession or Voucher section of your tax return.

3.     Filing Income Wrongly

Filing your taxes as a self-employed person is required. This includes income for:

  • Freelancers
  • Agents (real estate, insurance, commission)
  • Tutors

This income must be declared as trade income under the Trade, Business or Vocation section of your tax return when filing online. This income will not be filed under employment income.

4.     Claiming Money Paid to a Partner as an Expense

Money or fees paid to a partner cannot be consider an expense. The money must be treated properly as business drawings.

5.     Claiming Private Vehicles and Travel Expenses as Deductions

Private automobiles and travel expenses cannot be claimed as a deduction on your self-employed tax returns. Expenses incurred when using the vehicle for business purposes should also not be deducted.

Proper proof of the expenses incurred will be needed if deducting these expenses as business expenses. Documentation includes:

  • Purpose of travel
  • Person incurring the expense
  • Mode of transportation
  • Total amount incurred

It’s best to keep private and company vehicle usage separate. When vehicles are owned by the owner and not an asset of the business, it can be difficult to assess the usage of the vehicle.

6.     Claiming Estimated Entertainment and Gifts

Entertainment and gifts can be deducted from your self-employment tax return, but there needs to be clear documentation of the event. A good example of a time when entertainment and gifts may be given are:

You court a potential client and discuss business over dinner. The expense of the dinner as well as the travel cost to the dinner can be deducted. A gift of a company t-shirt, product sample or other good is provided to the client in hopes of future business.

In this case, you’ll be able to deduct these costs accordingly.

Documentation is necessary, and it’s important to be as thorough as possible when documenting entertainment and gift deductions. The following supporting documents should be filed:

  • Total amount incurred
  • Name of the person(s) entertained
  • Capacity of person(s) receiving gifts
  • Reason for giving the gift(s)

All of these documents should be kept on hand for a period of at least 5 years.

7.     Deducting Private Expenses as Business Expenses

Penalties can be assessed to a business owner that deducts private expenses as business expenses. Self-employed persons cannot deduct personal expenses as business expenses. A few key items that cannot be deducted include:

  • Life insurance
  • Medical insurance
  • Purposely-incurred business expenses
  • Schooling or course costs

Expenses only related to the business or betterment of the business can be deducted. A freelance web designer who takes a course on PHP to bolster his or her expertise and business can deduct the cost of the studies. If, however, the owner took a cooking course that has no relation to his or her business, this expense cannot be legally deducted.

Any expenses that are incurred for the sole purpose of claiming a tax deduction are strictly prohibited.

8.     Claiming CPF Relief

Central Provident Fund relief for self-employed persons in Singapore allow for the self-employed to make contributions to CPF accounts in an attempt to reduce tax requirements. The caps for self-employed persons in 2016 are as follows:

  • Net Trade Income Ceiling: $85,000 or $5,000 x 17 months. This figure moves up to $102,000, or $6,000 x 17 months in 2017.
  • CPF Contribution Rate: 37% for 2016 – 2017
  • CPF Relief Cap: The relief cap is $31,450 in 2016 and $37,740 in 2017.

A business must have an assessable net trade income to be able to claim CPF relief. There is no need to claim relief on Form B – it’s automatically sought for self-employed.

Singapore’s complex tax codes and regulations should not be traversed without the help of an accountant. Staying within the legal borders of business requires proper tax filing.

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