As the March 15 income tax filing due date draws closer, a number of individuals have been asking questions about what are their tax responsibilities. For individuals operating a business and or earning an income from any kind of trade, service or rent, one of their obligations is to file and pay taxes due, no more, no less. As a guide, below are answers to some of the frequently asked questions from individuals operating businesses.
If Someone Operates A Small Business Do They Need To File Income Tax Returns?
Regardless of the size business, once an individual is self-employed, a partner in a business or is employed and earn additional income from other sources they should file and pay Income Tax Return (IT01) for last year (2012). In addition a Declaration of Estimated Income & Tax Payable Return (IT07) for 2013 is also required by March 15 on which payments should be made in quarterly instalments.
How Does A Person Know If Their Income Is Taxable?
Once a person operates any sort of business and/or earns an income it is taxable. Persons may earn income from profits or earnings from business, trade, profession, vocation, creative talent, rent, interest and farming. Examples of persons who should file annual income tax returns and pay the relevant tax include, among others:
o Landlords (including residential)
o Part-time Workers
o Bar operators
o Hairdressers/Nail Technicians
o Sports men/women
o Taxi or bus operators
o Graphic Artists
o Interior Decorators
Do Individuals Pay Tax On Their Gross Income?
No. To calculate the amount of income on which tax should be paid, person should subtract genuine business expenses incurred to earn their income from their gross earnings. Remember that private and domestic expenses such as personal utility bills, school fees and grocery bills are not allowed. The cost of for fixed assets such as freezers, computers, furniture and equipment are also not allowed. However, the law allows persons to recover the cost over time by claiming capital allowances at predetermined rates on fixed assets used in the business. The rates applicable to each type of asset are shown on the TAJ website. It should be noted also that losses from a business can be set off against income received. Any loss suffered may be carried forward indefinitely until it is fully utilised.
Is There A Simple Way To Calculate Taxes Without Having to Employ An Accountant?
Yes there is. If the gross income from a business is less than or equal to $3,000,000 ($3M) persons may use a Schedule 1 - Details of Trading form to guide them how to calculate net profit and the income tax liability. This form sets out various income sources/types and expenses from a business. Once all the figures are calculated it will reflect the net profit. The information can then be transferred to the income tax return IT01. We recommend that persons use the forms available on the website www.jamaicatax.gov.jm, as this will allow them to type in the information, which can then be printed.
How Does A Person Calculate How Much Tax To Pay?
The income tax rate for individuals is 25%. However, every individual resident in Jamaica is allowed an annual threshold or a nil rate of tax on the first $441,168 earned for 2012. This means that if the net profit or earnings is less than the threshold there would be no tax to pay. Please note however that the person would still need to file an income tax return. Pensioners and persons 65 years and over are further entitled to a pension exemption of $80,000 and a golden age exemption of$80,000 for 2012. If an individual is both a pensioner and over 65 years, both exemptions totalling $160,000 are allowed.
For example the 2012 tax liability for a sixty-six year old shopkeeper, who is not a pensioner, is as follows:
Total Gross Income $1,200,000
Less business expenses $ 620,000
Net profit $ 580,000
Less exemption (over 65) $ 80,000
Statutory income $ 500,000
Less nil rate $ 441,168
Taxable income $ 58,832
Tax @ 25% $ 14,708
Additionally, in computing the projected income and tax payable for the year 2013, persons should use the income tax threshold which has been increased to $507,312. In respect of pensioners and persons aged 65 and over, those exemptions remain at $80,000, in each case for 2013.
Where Tax Returns Should Be Filed?
Persons are encouraged to use the option of filing and paying online using the Jamaica Tax Portal at www.jamaicatax-online.gov.jm. It's more convenient and it's free. However they must first register to use the online filing option. This can be done by contacting TAJ's Customer Care Centre at 1-888-TAX-HELP (829-4357) or visiting any tax office.
Individuals may also file their income tax returns at the Tax Office nearest to them. It is recommended that persons do not wait until the last day to submit their tax return as the Tax Offices are usually very crowded at that time and it would therefore take a longer time to be processed. Alternately, for persons who are just submitting a return without a payment or they are paying by cheque, they may use the electronic drop boxes available at the King Street, Cross Roads, Constant Spring, Mandeville, Montego Bay or Spanish Town Tax Offices.
Where Can Persons Get Additional Information?
For additional information persons may call the Tax Administration Customer Care Centre at 1-888-TAX-HELP (1-888-829-4357), contact their local Tax Office, or log on to the website www.jamaicatax.gov.jm. They may also get details of a free Special Taxpayer Assistance Programme currently being hosted by TAJ at several locations across the island, to help individuals and small business operators to prepare their Income Tax returns.