In July the VAT return is to be filed by entrepreneurs for the value added tax. While the bookkeeping is processed, maybe the 2014 preliminary income tax assessment also needs to be updated? How does it work:
The tax office basically demands entrepreneurs to inform them about the expected result for the current tax year. Based on these details a preliminary income tax return is issued. Via this system you pay already in the year you earn the income the tax.
Basically the same as an employee. The employer withholds every month from the gross salary of the employee the wage tax and pays that to the tax office. This to prevent that the employee spends it all and cannot pay for the tax at the end of the year.
This principle can also be applied to entrepreneurs. For them this situation is not much different. The income they earn now can be spend or invested in full, with the result that when the tax is due after the year has closed, there is not enough money to pay for the tax. The tax office does not have a lot of sympathy for these cases, as they have the opinion “ you earned it, so you pay the tax’.
By informing already the tax office how much you think you will earn, you pay on a monthly basis the preliminary income tax. At the end of the year it is balanced. If the result was higher, then you pay additional income tax. If the result was lower, you receive a refund.
In July your bookkeeper is processing the turnover and costs of the second quarter value added tax return. With the outcome of the result and the forecast of the second quarter of the year you can make a good indication of the result. Then you compare the result with the result you provided to the tax office to see if the preliminary assessment is too high or not high enough. This prevents you surprises at the end of the year.
