The newbies' quick guide to tax season

Each July, the South African Revenue Service (SARS) kicks off tax season, a window that remains open until late November. During this time, taxpayers are required to submit their personal tax return for the 12-month period up to end of February.

As new employees and contractors enter the job market, they quite often lack the experience needed to complete their tax return correctly. We consulted experts to find out what these newbies need to know.

Tip: Have you tried out our tax calculator? Click here to give it a try.

The four phases of tax season

Danielle Luwes, tax manager at Hobbs Sinclair Incorporated, notes that tax filing season was recently adapted with the introduction of tax auto assessment. Developed in response to COVID-19, the idea was to simplify the tax-filing process and eliminate the need to visit branches. 

The four-phase process is as follows.

Phase 1. This phase is reserved for employers and other third-party data providers, such as medical schemes, retirement annuity funds, and banks.

Phase 2. SARS validates third-party data and follows up on employers and others who have failed to file their data with SARS on time.

Phase 3. Auto assessment commences, based on the data received in Phases 1 and 2. A significant number of taxpayers will receive draft assessments from SARS, which they will need to check, confirm and submit. This is most relevant to taxpayers who typically receive only one source of income, have medical aid and/or retirement annuity, and may receive interest on their bank accounts.

Phase 4. The final phase allows the remaining taxpayers with more intricate tax returns to make their submissions.

Which documents should you be familiar with?

According to Nicci Courtney-Clarke, head of tax at Tax Tim, depending on your circumstances, you should be familiar with the following forms and documents.

• IRP5/IT3a
• Investment certificates (IT3b/IT3c)
• Medical tax certificates
• Retirement annuity tax certificates IT3(f)
• Donation tax certificates (s18A)
• Tax-free savings certificates (IT3s)
• Logbook for business travel (if applicable)
• Income statement (for sole proprietor/freelancer)

“Keep detailed records of your income and expenses, as well as all supporting calculations for your deductions, for example travel, and wear and tear,” says Courtney-Clarke.

“Keep a detailed logbook, with opening and closing odometer readings, if you travel for business and qualify to claim a travel deduction. If you’re an employee, you must receive a travel allowance coded 3701 or 3702 in order to claim a travel deduction,” she explains.

“Keep all proof of expenses, such as invoices and receipts, as supporting documents should SARS request proof. Safely store all of your tax certificates, for example, your medical expense receipts, interest certificates, RA certificates, and IRP5/IT3, to submit to SARS if they are requested,” she urges.

Traditional or provisional taxpayer

According to Ken Brown, master franchisor at SME.Tax, it’s important to know whether you’re registered as a traditional or provisional taxpayer because there are different submission requirements and deadlines:

• Traditional taxpayer – Employee with a single source of income
• Provisional taxpayer – Multiple sources of income

“People must make sure they have taken all their income and expenses into account – that side hustle making a profit or loss could have a serious impact on your taxes if you don’t,” says Brown.

He recommends making use of a tax practitioner if you have multiple streams of income and you’re unsure of the expenses you could claim against them.

What else to keep in mind?

Bradley Woolridge, managing director at Burns Acutt Accountants, offers the following tips to those who are new to submitting tax returns.

• Tip 1:There are more deductions available than you may realise. The chance that you’re leaving money on the table is high.
• Tip 2:The cost of an expert might not be offset by the value that they add, but it could be dwarfed by what they uncover.
• Tip 3:Details are important, as are supporting documents. Have a plan to cover these two crucial areas. This will prevent additional assessments, penalties, and interest from SARS.
• Tip 4:Planning is the secret to tax efficiency. You can’t control what’s already transpired but you can influence what will be, and you can make sure that the guidance you choose is in your best interest.

Find out everything you need to know about taxes by visiting this page.