There are a few misunderstandings about general tax, how it functions and how it affects every citizen.
That being said we need to understand how tax practitioners operate and how they work with businesses or individuals and what they generally want from each organization.
In this blog we want to not only educate people who don't know anything about tax but also to dispel general misconceptions about tax.
1. If I file a tax extension this year, I don’t have to pay anything until then.
That would be nice, but it isn’t true. If you file for an extension, you still have to pay taxes by April 15, regardless of the extended deadline. If you don’t, interest and penalties will start adding up.
2. Itemized deductions always save me a lot of money!
Unfortunately, that’s a no. What you are actually saving is the difference between your standard deductions and your total itemized deductions.
That’s because you can’t get the standard deduction if you file for itemized deductions.
You need to check to see how much you would get on each and decide which is better.
3. My spouse and I have to file together.
No, you can file separately as well.
In most cases, filing jointly will yield you some financial benefits, but that’s not always the case.
Also, the same rules apply to same sex married couples.
4. The amount I spend on lunch with clients, I can subtract it entirely because it’s a business transaction.
People often think this to be the case.
However, there is a difference between credits and deductions.
Credits can be subtracted entirely, but business lunches and similar entertainment things fall in the deduction’s category, and you can thus make only partial 50% deductions.
5. I’m too young to pay taxes
In South Africa, the legal employment age is 15 years old.
Thus, if an employee is 15 or older and earns more than R75 000 per year, the employer must withhold PAYE from the employee’s salary.
6. Money made over the internet is tax-free
Money made from a trade conducted over the internet must be included in a South African resident’s gross income and is taxable as ordinary income, provided that the amount is not of a capital nature.
7. Once I receive my refund I may no longer be subject to audit
SARS may trigger an audit at any time to investigate any concerns it may have.
Hopefully we were able to cover most uncertainties you may have had about tax, which situations to not be caught in when the tax man finally comes to audit your organization as well as how prepared your organization should be to ensure a smooth working relationship between you and your tax advisor.
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