In this blog post we look at what is considered taxable income for a sole trader or partnership that would need to be included in your tax return.
It’s important to make sure you understand how to handle your taxes. This can be overwhelming, especially if you are new to this.
But don’t worry—we’re here to explain it all to you.
What do I mean by self-employed?
You are self-employed if you are running a business and are not registered as a company. You will be reporting your income and expenditure to SARS each year via your Self-Assessment Tax Return and will be paying personal income tax.
If you run your business as a partnership, then all partners are deemed self-employed from a tax point and from a paying yourself point too.
GREAT, So how do I pay myself?
In these situations, you pay yourself by taking money out of the business - drawings - and you record these in your books as "Drawings". If you are in a partnership then record them as "Drawings - name 1", "Drawings - name 2" etc so that you can easily see who has taken what out of the business.
You can take money out as often as you would like, but I encourage clients to get into a routine of "paying" themselves monthly like they would do if they were an employee. This makes keeping track of money a lot easier both within the business but also for your own finances too.
How are my drawings taxed?
They aren't - when you are self employed you are taxed on the profits of the business as a whole before any money that you take out for your use. You are taxed using the individual tax tables from SARS on the profits of the business. If you are in a partnership, the profits are split between partners and taxed in that ratio accordingly.
Do I need Payroll and PAYE?
No - when it's just you then you don't need to have payroll or PAYE in place - the cash is yours. If you then have employees further down the line then you will need to have a payroll system in place (I will be covering this in a later article).
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