Describe how you report your self-employed income and how IRAS assesses it.
When you were an employee, filing income tax mostly meant logging in, checking figures your employer had already sent to IRAS, and submitting. Your first year of filing as a freelancer works differently. The form asks for your gross income, your expenses and your profit. Nobody has sent those figures to IRAS, so you supply all of them. The tax bill also arrives months after the year ends, and none of it has been paid in advance.
As a self-employed person, you declare your trade income and expenses in your yearly income tax return. IRAS decides which form you use. For most self-employed people it is Form B, which you file online through myTax Portal. If you also earn a salary from a job, it goes on the same return as your trade income. In most cases your employer has already sent the salary figures to IRAS.
For your trade income, you report revenue and expenses. Businesses below a certain revenue level may report a short statement of a few lines instead of full accounts, provided proper records are kept behind it. Check the current revenue limit, and what the short statement includes, on the IRAS website before you rely on it.
Whichever version you file, the figures come from you. IRAS does not know what your clients paid until you tell it, but it can check later. Module 4 spends two lessons on expenses and records for this reason.
IRAS taxes your chargeable income: your net trade income, plus other income such as salary, minus the reliefs you qualify for. Net trade income is your gross trade income minus allowable business expenses and capital allowances. Lesson 2.2 showed where this figure comes from. The CPF Board uses the same net trade income figure to set your MediSave contribution, so one number drives two bills, your tax and your MediSave.
Reliefs are deductions IRAS allows for personal circumstances, such as some CPF contributions, supporting your parents or having children. They reduce your chargeable income. This course only touches on reliefs; the Tax & Reliefs course covers them in depth.
The calculation runs in this order:
Take your gross trade income. Subtract allowable business expenses and capital allowances to get your net trade income. Add any other income, such as salary. Subtract the reliefs you qualify for. The result is your chargeable income. Enter your income and reliefs in the IRAS calculator to get your tax.
Mei is a freelancer. Her net trade income is S$58,000 (an example figure). She also earned S$1,200 as an employee teaching workshops. Say her reliefs come to S$9,000. Her chargeable income is S$58,000 + S$1,200 - S$9,000 = S$50,200. The IRAS calculator would turn that figure into her tax bill.
Residents are taxed on chargeable income at progressive rates. The first slice of income is taxed at zero, and each slice above it is taxed at a higher rate. You don't need to work out the slices by hand. The calculator on the IRAS website does it once you enter your income and reliefs.
The government and IRAS set tax rates, rate bands, relief rules and filing deadlines, and any of these can change from year to year. Figures from a friend who freelanced five years ago may be out of date. Once a year, spend about ten minutes on a check: open the IRAS page for self-employed persons, note the current filing deadline, and note any change to the rates or the form.
Missing the deadline has a cost. If your return is late or missing, IRAS can issue an estimated assessment, a tax figure it sets itself, which may be higher than the tax you actually owe. IRAS can also add penalties for filing late or not filing at all. MediSave follows the assessed figure, so a late or estimated return can make two bills wrong at once.
Employees in Singapore usually also pay income tax after the year ends, but their salary is the same every month, so the bill is easy to plan for. Many pay by monthly GIRO instalments. Freelance income is lumpy, and clients do not deduct tax from your fees. If you spend each payment in full, the bill arrives after the money is gone.
In her first freelance year, Mei had no tax and MediSave pot. When her tax bill came, she paid it on her credit card and cleared the card over three months. She now treats the pot as untouchable.
You set up your pot in Lesson 1.3 and sized it in Lesson 2.4. As each client payment arrives, send its share to the pot. When the notice of assessment arrives, pay from the pot, either in one go or by GIRO instalments, and your base pay stays unchanged. IRAS offers payment by GIRO instalments, and the conditions are on the IRAS website. Instalments only help if the money is there to pay them, and that money comes from the pot.
You don't need to master the tax system to file correctly. You need three things: the right form, the right deadline and accurate figures. The form and the deadline are both on one IRAS page, the page for self-employed persons. The next three lessons build the accurate figures. Start with the first two, and keep the page bookmarked for next year's check.
Look up the IRAS page for self-employed persons. Write down this year's filing deadline and the form you will use.
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