In most parts of the world, we are getting into tax season. Over the next two months or so, individuals, particularly those who are not part of a Pay As You Earn (PAYE) scheme, and organisations are required to file their tax returns for the period ending 31 December 2021.

For many people, completing the paperwork can be daunting, and truthfully, depending on the country, the forms and process can be complicated. However, over the years and to some degree, Inland Revenue Departments (IRDs) have tried to simplify the process, in order to achieve increase compliance by tax payers who want to file, but are frustrated by the process.

Depending on the country and the tax scheme that has been put in place, it may not be necessary for individuals who are paying taxes through their employer, which is being deducted from their salary monthly or fortnightly, to also file tax returns. However, and again depending on the country, there might be benefits to be had by filing, as tax refunds may be possible, which can act as an incentive to file one’s tax returns.

People who are self-employed, by right, ought to be also paying taxes and filing tax returns. However, and unlike those who are on a PAYE scheme, they might need to pay the taxes owed in a single lump sum, as opposed to having the payments deducted in more manageable amounts on a monthly or bi-weekly basis.

Nevertheless, and for those who ought to be filing taxes, here are a few key steps you should take.

 

1.  Revisit The IRD Website And The Process

Often, we tend to visit the IRD website only around tax time, and so over the period of a year, the website, filing processes, forms and/or documents may have changed. It is thus useful to double check that you are familiar with the website, and whether any of the forms or instructions have been updated.

Admittedly, it is easy to replicate last year’s form and just replace some of the figures. However, before you sit down to prepare the return, and in order to have no surprises, it would be beneficial to spend some time reacquainting yourself with the requirements, so that you can be efficient once you get started.  

 

2.  Confirm Tax Payments Already Made On Your Behalf

If you are employed and are on a PAYE scheme, in order to successfully file your tax return, you ought to show evidence of the payments that have already been made on your behalf. Sometime after the end of the calendar year, the accounts department or personnel at your workplace should provide you with the necessary documentation that you can submit as part of your tax filing. Alternatively, you may be able to submit your salary slips, which should show your gross salary fortnightly or monthly, and all of the deductions that have been made – including those towards your personal income tax and other statutory deductions.

However, if by chance your employer has been deducting money from your salary on the premise of paying in your individual taxes, you can confirm with the IRD that the payments indeed have been made, and that everything is in order. If there is a problem, do advise the IRD. However, note that you may also need to secure some legal and/or tax advice as well, in order to properly navigate whatever processes that should be invoked.

If you are self-employed, the Government may require you to make regular payments, usually on a quarterly basis, in anticipation of the taxes you are likely to owe. Your tax return then becomes a way of reconciling what you have already paid against what you in fact owe in taxes. So, if you have made those payments in advance, ensure that you have the requisite documentation to accompany your tax filing.

 

3.  Assemble Receipts And Supporting Documents

Having re-familiarised yourself with the tax form, the requirements, and the claims you might be able to make, spend some time assembling all of the receipts and supporting documents. Thanks to the previous point, you should be aware of your total salary from your main employment, along with taxes and other deductions that have already been paid on your behalf. But depending on your country’s tax scheme, you may be able may claims for among other things:

• Dependents – usually spouse and/or children
• Medical expenses/medical insurance
• Life insurance
• Mortgages
• Donations to charities.

Now would also be the time to assemble receipts or invoices from income generated from other means, such as from a side hustle, or as dividend payments. Although you may want to argue that these lines of income might be nominal and so should not be included in your tax filing, do note that should the Government discover that income at a later date, depending on the country, severe penalties could be incurred.

 

4.  Find Copy Of Last Year’s Return

Typically, tax return forms do not change drastically from year to year, so having access to last year’s return can be useful to ensure that you are thorough in your preparations and not overlook some items. Also, and unless there have been major changes in your income, expenses, deductions or claims, the odds are that the final tally for this year’s return should be (more or less) consistent with last year’s.  

If the final tally is wildly different from last year’s tax return, and without any justification, it may be prudent to double check all entries for accuracy. A major change in the taxes owed could be flagged by the IRD, and could result in an audit.

In and of itself, the audit should not be feared. But this is why it is important to ensure that your tax return is correct, without any errors, and can be supported by the necessary receipts and documentation.

 

5.  Know What Provision You Can Make If You Have To Pay Taxes

Ideally, when you are filing your tax return, and you owe money to the Government, it ought to be accompanied by payment – either by cheque, or paid online, as appropriate. If you have not been making tax payments to the IRD in advance, or have not been putting money aside for that very purpose, the final tally when calculated could be an eye-watering amount. Moreover, it may be a strain to your budget and savings to pay it in all at once – regardless of what is owed.

In some countries, it may be possible to get an extension or to arrange to pay monies own in instalments. However, your monthly budget, income and expenses will also need to be considered, in order to ensure that a manageable arrangement can be found.

 

6.  Get The Help Of A Tax Professional

Finally, and if you are not comfortable with preparing and filing your own tax returns, it may be prudent to seek the services of a tax preparation professional. In some countries, tax specialists are readily available; in others, accountants offer that service. Nevertheless, it is important to do some research, to ensure the selected individual is reputable, and consistent with the rules of your country, is authorised to file tax returns on behalf of others.

 

 

Image: Nataliya Vaitkevich (Pexels)