Question about income tax

kingbhome

If one brings in 30k for income working self employed single man and buys 5k tools and spends 3.5k on diesel,van insurance and other expenses in same year, does he still pay 20% on the 30k for income tax or does it reduce to under it because of expenses.

Peregrinus

If he's self-employed, in calculating the taxable profits of this trade he gets to deduct expenses wholly and exclusively incurred in the course of the trade. So insurance, fuel, etc are deductible.

The expenditure on tools is regarded as a capital expense, which will yield benefits in the trade for years to come, so what you get for that is not an immediate deduction, but a "capital allowance" - you write off the cost of the tools over a number of years, rather than all in one year. I'm open to correction, but I think that instead of deducting 5k in one year, you get to deduct one-eighth of 5k (which is 625) each year for eight years.

It would be worth your while (and your money) to sit down with an accountant for a session or two to make sure you understand the basis on which your tax is calculated, and that you are claiming all the deductions you are entitled to. (Any fees you pay to the accountant are also deductible as an expense of the trade).

kingbhome

Peregrinus wrote: »

If he's self-employed, in calculating the taxable profits of this trade he gets to deduct expenses wholly and exclusively incurred in the course of the trade. So insurance, fuel, etc are deductible.

The expenditure on tools is regarded as a capital expense, which will yield benefits in the trade for years to come, so what you get for that is not an immediate deduction, but a "capital allowance" - you write off the cost of the tools over a number of years, rather than all in one year. I'm open to correction, but I think that instead of deducting 5k in one year, you get to deduct one-eighth of 5k (which is 625) each year for eight years.

It would be worth your while (and your money) to sit down with an accountant for a session or two to make sure you understand the basis on which your tax is calculated, and that you are claiming all the deductions you are entitled to. (Any fees you pay to the accountant are also deductible as an expense of the trade).

So is it he only pays 20% on roughly 25k once everything is deducted.

Peregrinus

kingbhome wrote: »

So is it he only pays 20% on roughly 25k once everything is deducted.

No. If his taxable income is 25k after deductions, then tax is caculated on on 25k at 20% (= 5k). But (assuming that's his only income) after tax is calculated, he can deduct his tax credits and reliefs. At a minimum he will get a personal tax credit of 1,650 and, depending on his circumstances, he may be entitled to other credits and reliefs. So the final tax bill should be 3,350 or less.

Grolschevik

And don't forget the PRSI and USC.

kingbhome

Grolschevik wrote: »

And don't forget the PRSI and USC.

Isn't both them 8%?

Bubbaclaus

kingbhome wrote: »

Isn't both them 8%?

Neither of them are 8%

PRSI is 4% and USC is anything from 0 to 11%.

mkdon05

And the earned income credit reduces tax liability further.

Also if its the first year of trading there are commencement rules (depending on what month you started trading) to be adhered to.

exaisle

As Peregrinus said earlier...you really need to see an accountant.

It may be possible to claim the cost of some tools as an expense...specifically the kind that you'll tend to buy every year because they wear out eg. hand tools.

If you own your own van, then you can also claim 12.5% of the cost as wear and tear over 8 years(less any proportion for private use).

If you started trading in 2017, then you have plenty of time to see an accountant and get yourself sorted.

kingbhome

exaisle wrote: »

As Peregrinus said earlier...you really need to see an accountant.

It may be possible to claim the cost of some tools as an expense...specifically the kind that you'll tend to buy every year because they wear out eg. hand tools.

If you own your own van, then you can also claim 12.5% of the cost as wear and tear over 8 years(less any proportion for private use).

If you started trading in 2017, then you have plenty of time to see an accountant and get yourself sorted.

Is that even for a second hand van, 10yr old?

exaisle

kingbhome wrote: »

Is that even for a second hand van, 10yr old?

Put a value on it when you started trading....or the cost if you bought it for the business.