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5 Common Tax Filing Mistakes of Self-Proprietors in Singapore

The Inland Revenue Authority of Singapore (IRAS), the government’s main revenue collection body, rigorously enforces a sustainable tax system that allows taxpayers to fairly contribute to the economy.

Encountering mistakes in filing one’s Singapore income tax is not an uncommon occurrence. According to IRAS, self-proprietors and self-employed in Singapore are most prone to committing mistakes in filing their returns. Such tax mistakes are mostly prevalent in industries such as maid agency, arts and collectibles, beauty and wellness, tuition centre and medical practitioners. In line with this, IRAS is implementing a proactive approach in providing assistance to taxpayers who are self-employed through proper information dissemination and audit activities. Failure to comply generally comes from neglect or the lack of understanding about tax matters. While this is not an unusual incidence, taking necessary precautionary measures to avoid tax filing slip-ups is highly encouraged. By law, IRAS may issue corresponding penalties for tax return filing errors.

Below are 5 common tax filing mistakes of self-proprietors in Singapore:

1. Incorrect reporting of income. Some taxpayers tend to commit errors in the declaration of their revenue. This includes errors in summing up income, reporting of takings based on estimates, failure to maintain proper records on actual transactions made, failure to segregate deposits made into personal and business bank accounts resulting in lower business income reported. How to avoid this? You must have separate bank accounts for personal and business transactions to ensure an accurate reporting of income both for the individual and the business.

2. Reporting income based on estimates. IRAS does not accept rough estimations in filing one’s personal income tax and instead, require everyone to submit supporting documents to validate each reported expense.

3. Claiming deduction on non-deductible expenses. For income tax purposes, taxpayers are encouraged to ensure that their private expenses that are non-deductible must not be claimed against business income. Some of these expenses include personal insurance, personal trips, personal medical fees, and club membership subscriptions. Non-deductible expenses also vehicular expenses such as petrol or repair, maintenance and the like even when said expenses were incurred for business purposes.

4. Lack of proper records or documents to substantiate reported income. There are individuals who have not properly kept the needed records such as receipts, invoices, statements and vouchers that will enable IRAS to ensure that the accuracy of the declared income. Take note that for the sole purpose of income tax filing, one must keep a proper account of business transactions for at least five (5) years. Failure to do so entails corresponding penalties.

5. Failure to declare other sources of income. Another common mistake in filing income tax returns is the failure to disclose other income sources such as rental income, directors’ fees, freelance jobs and the like. As a general rule, any endeavour that lets you earn falls under income and must be disclosed to IRAS.