Six mistakes that tax practitioners should avoid

Six mistakes that tax practitioners should avoid

• 08 July 2022
• Blogs
• Skylight Digital

Six mistakes that tax practitioners should avoid

The general public looks to tax professionals to help them through the vast tax laws and regulations riddled with confusing jargon. Because of the complexity and ambiguity of the statutory nature of the task, it is unavoidable for tax specialists to make mistakes.

To limit the possibility of errors when preparing taxes, tax professionals must:

• Continue to hone your professional abilities.

• Maintain vigilance, so that client pressure does not damage your ethical judgment.

• Stay informed about current tax concerns that may influence your clients.

• Strike a responsive balance between servicing your clients and complying with tax rules.

• Ensure that you stay up to date on the latest tax law changes, are informed about current developments, and that you remain professionally competent. 

Some mistakes to look out for include:

Assuming the incorrect due date

Note that the tax season will be shorter this year with individual filing season opening on 1 July 2022. Taxpayers who file manually at a branch (by appointment only) or online have until 24 October 2022. Provisional taxpayers (including trusts) may file via eFiling or SARS MobiApp until 23 January 2023. 

Confusion over the best filing status

Whether a client's parental, marital, or medical aid plan membership status affects their eligibility to claim specific incentives and credits and the amounts of such deductions or credits, a client's filing status is sometimes straightforward. However, in some circumstances, it is not that evident. Determining whether credits or incentives each client is qualified for necessitates significant thought.

Home office expenses

Many South Africans have been and still are working from home since the outbreak of the Covid-19 pandemic, and claims for refunds on home office expenses have increased significantly. However, SARS has been very strict about paying refunds and in the previous tax year, 60% of home office claims were disallowed.

“It is important that taxpayers pay careful attention to the rules regarding home office deductions,” says Stiaan Klue, executive dean at The Tax Faculty. “It is critical that taxpayers ensure that they qualify for deductions in terms of the current legislation, particularly for individuals who are employed.”

The recent interpretation note (IN 28, Issue 3) released in March 2022 provides clarity on the matter and sets out various examples to determine eligibility (for example, is the space used regularly and exclusively for trade).

Interest and dividends 

Taxpayers who have many accounts or get minor amounts of interest or dividends are more prone to overlook the charges on their returns. This results in income being omitted. Clients may also face penalties and interest on any additional amount payable that was not accounted for on the original return. Ask your clients, especially those who file early, about this often-overlooked source of revenue.

Withdrawals from early retirement funds 

Taxpayers frequently fail to notify their accountants when they make early withdrawals from retirement accounts. Asking clients explicitly if they have made an early retirement withdrawal or rolled over retirement savings into another qualified account may prevent income omission and underreporting tax liability.

Failure to declare crypto assets transactions

Transactions in virtual currency (such as Bitcoin) are currently "hot." However, many taxpayers are unaware that cryptocurrencies are classified as property for income tax purposes. Any capital gain or loss on virtual currency transactions must be recognized (subject to any limitations on capital losses).

SARS has said unequivocally that cryptocurrency transactions are subject to South African tax legislation. Crypto profits are taxed either as capital gains or revenue transactions (i.e., regular income, like your salary or freelance income). The amount of tax payable will be determined by the taxpayer's status and the reason for purchasing the cryptocurrency in the first place.

Most global tax authorities have stated that their respective income tax acts cater to crypto assets. They argue that crypto is an asset. The income tax act caters to the taxation of assets, and no further guidance is required. Chris Herbst disagrees with this, he argues that the nuances of the crypto asset space require special consideration. Read more as he unpacks.

To avoid mistakes, tax practitioners must stay current on statutory, technological, economic, and industrial trends that affect the interaction between the fiscus and tax-paying firms.

Have a look at our range of CPD subscription plans (including live webinars, on-demand webinars, and access to technical content in our knowledge centre), to ensure stay up to date on the latest tax law changes and are informed about current developments. The Tax Faculty offers a range of upcoming webinars from crypto assets and taxation to current issues in provisional tax to ensure you remain professionally competent. 

0 COMMENTS

LEAVE A COMMENT