February is known as tax month with the announcement of the National Budget as well as SARS tax year-end for personal tax. Therefore we are mastering 4 basic tax terms this month:
Taxable income refers to the amount of income an individual or company will pay tax on. Taxable income is calculated by using the gross income less any deductions or exemptions allowed by SARS.
Tax deductions refer to certain expenses that SARS allow for the taxpayer to deduct from gross income in order to calculate the amount of tax payable. Tax deductions include deductions for medical aid contributions / expenses, pension fund / retirement annuity contributions, certain charity donations (s18A) and other expenses incurred to produce additional income. The deductions will reduce the taxpayer’s taxable income and effectively the tax payable as well. Deductions will reduce the taxable income while tax rebates or credits will reduce the tax payable.
Income Tax Tables
Income tax tables (also referred to as tax brackets) indicate the tax rates that will be used to calculate the amount of tax payable based on different brackets of taxable income earned. The tax rates as per the tax tables will thus be applied on a taxpayer’s taxable income to determine how much tax is payable. The more the taxpayer earns, the more tax will be payable due to a higher tax rate.
With provisional tax the taxpayer is required to pay at least two, or sometimes three, tax payments in advance during the tax year. The amounts of provisional tax payable are based on estimated taxable income for the year. Provisional tax helps the taxpayer to spread the tax payable payments and not running the risk of having to pay a big amount of tax at the end of the year. For individuals provisional tax dates are August for first payment, February for second payment and September for third payment, if necessary.