You will produce a draft of your income and expense figures for the year from your records.
The best time to find a problem in your tax figures is before you file, when fixing it costs nothing, so treat this exercise as a dress rehearsal. You produce the income and expense figures for the year from your records, estimate the tax, and check whether your pot can pay it. If something is missing or the pot is short, you find out now.
Bring your records from lesson 4.3, your expense sorting from lesson 4.2, your bank statements and the IRAS tax calculator, and allow about thirty-five minutes. If you are partway through the year, use the year to date and treat the result as a midyear check.
Total every invoice you issued for the year. That is your starting figure for gross trade income. Trade income is generally income you earned in the year, which is why you start from invoices rather than from what landed in your bank. If you are unsure which year a particular invoice belongs to, check the IRAS guidance or ask an accountant.
Then match each invoice to a payment in your bank statements. Three things can turn up. A payment with no invoice means an invoice is missing from your records. An invoice with no payment is a client who still owes you, which module 7 deals with. And a payment for a different amount means a part payment, a bank charge or an error, each worth a note.
Mei, with figures made up for the example, issued invoices totalling S$62,400. Her bank shows S$60,900 received. The S$1,500 difference is one invoice issued in December and paid in January, so it matches.
Go through your expense records and total them by category: software, phone, internet, transport, materials and so on. For mixed items, use the business share from your notes. For capital items, use the capital allowance for the year in place of the price you paid.
Mei's year, again made up, comes to:
Software: S$1,080 Phone plan at a 40% business share of S$960: S$384 Home internet at a 30% business share of S$720: S$216 Transport to clients: S$640 Printing and samples: S$420
Those add up to S$2,740. Her laptop adds a capital allowance of S$800, from lesson 4.2. Total deductions: S$3,540.
Net trade income is gross trade income minus allowable expenses and capital allowances. For Mei, that is S$62,400 minus S$3,540, which is S$58,860.
Enter your net trade income, any other income and the reliefs you are sure of into the IRAS calculator. The result is an estimate, not your assessment, but it is close enough to test your pot. Suppose Mei's calculator result is S$1,300, a figure made up for this example.
Add your MediSave estimate from the CPF Board table, as in lesson 2.2. At the made-up example rate of 9%, S$58,860 gives S$5,297.40, which Mei rounds to S$5,300. Her expected bills from this year's income total S$6,600.
Check your tax and MediSave pot balance and compare it with the total.
Mei's pot holds S$5,900, which leaves a gap of S$700. Before she changes anything, she looks for the cause, because there are two kinds of gap and they have different fixes.
If the gap comes from the percentage, because her income or her MediSave rate turned out higher than she estimated in lesson 2.4, she raises the percentage. If it comes from the habit, because she skipped moving the share on some payments, the percentage is fine and the habit needs fixing.
Mei checks her pot transfers against her receipts and finds that in a busy November she missed moving the share on two payments, so the percentage itself was fine. She moves S$700 from the holding account to the pot today, and adds a weekly reminder to check for missed transfers.
If your pot holds more than the estimate, do not spend the extra yet. Leave it until the assessments arrive, then move what is left to the holding account.
A one-page statement with five lines: gross trade income, total expenses by category, capital allowances, net trade income and estimated tax plus MediSave. Below it, your pot balance and the gap, with its cause and what you did about it.
When you file for real, most of the work is already done. You copy the figures across and check them once more. Work through your own figures, line by line, in the statement for the activity.
Complete the draft income and expense statement and write the gap, if any, between estimated tax and your tax pot.
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