When it comes to taxes, the word “declaration” immediately thrills our senses and piques our interest, so what is it about this term that causes so many people to feel apprehensive and stressed? Is a tax return just a simple administrative procedure, or does it carry much more than that?
It is a document that forces us to provide details of our financial lives, revenues, as well as expenses, and determines our compliance with financial and tax laws, so we brought you this article in which we will dive into the world of this type of declaration and discover what is behind the numbers and models and what it really means to be a “responsible financial actor.”
What is a tax return?
It is an official document submitted by individuals or companies to the competent tax authority, such as the Zakat and Income Authority in many countries, and contains important details related to cash inflows and outflows from the establishment during a specific period of time. It contains a set of data needed to compute the tax amounts owed by a business or individual.
A tax return, for example, contains information on a company’s sales and income, as well as costs and purchases deducted from revenue to compute net taxable profit.
The importance of tax returns
The tax return is a vital tool in the tax system, and it is of great importance for individuals and companies as follows:
Legal Compliance
Individuals and companies must file tax returns in accordance with legal requirements, and by complying with tax controls and legislation, a fair and balanced tax system is built that provides the necessary financial resources to finance public services.
Cash Flow Management
This type of declaration acts as a cash flow management tool for companies and individuals, and by analyzing the financial details and cash flows in the tax return, individuals and companies can evaluate their financial performance, identify sources of revenue and expenses, and thus help in making sound management decisions and effective financial planning.
Record keeping
Individuals and businesses are required to keep accurate and up-to-date financial records, and it is worth noting that this commitment aids in documenting financial details and various financial transactions, as well as providing strong support for tax returns. Maintaining accurate records is also a legal requirement that can be used in the event of a tax audit or financial inquiry.
Claim a VAT refund.
The tax return allows eligible companies and individuals to claim a refund of value-added tax (VAT) paid on eligible purchases, as this claim can contribute to reducing the cost of purchases and enhancing the financial liquidity of companies and individuals.
Information on tax returns
When submitting this type of return, it includes a set of important information that contributes to assessing the company’s tax obligation and calculating the tax amounts due or recoverable. Among the main information included in the tax return, the following can be mentioned:
Company VAT registration number
Includes a company’s VAT registration number, which is a unique number given to a company to identify its tax identity.
The VAT period covered by the return
The VAT period covered by the return is specified, usually including the months of the fiscal year or another specific time period.
Value Added Tax on Company Sales and Outputs
Accurate details about the sales and outputs collected by VAT during the specified period must be provided, and it is worth noting that the tax amount is determined based on the tax rate in force in each country.
VAT on purchases and business inputs.
You must give information on purchases and inputs for which VAT was paid during the relevant time, as VAT is often levied when acquiring qualified goods and services.
Total amount of VAT payable or refundable
The total amount of VAT payable to the company or recoverable is determined based on the tax differences between sales, purchases, and inputs. If the amounts paid are greater than the amounts due, the surplus may be recovered, while if the amounts due are greater than the amounts paid, the company may have to pay the difference.
Any amendments or corrections to previous VAT returns
If there are errors or corrections that must be made to previous VAT returns, they must be clarified, and the necessary details must be provided in the current return.
How are tax returns prepared?
If you’re curious about how a tax return is prepared, Here’s how.
Download the declaration form.
Begin by obtaining the free tax return form from the tax authority’s website in your nation; the form is also available through the Qoyod accounting application.
Please enter the needed information.
Enter the required information in the form, including your company’s VAT registration number and the period covered by the tax return. Keep in mind that you must enter the total value of your sales, the amount of output tax due, the total value of your purchases, and the amount of input tax due.
Calculation of VAT payable or refundable
Calculate the amount of VAT due or recoverable based on the difference between the output tax (you get from sales) and the input tax (you pay on purchases).
If the output tax is greater than the input tax, the resulting amount is the sales tax due, and if the input tax is greater than the output tax, the resulting amount is refundable sales tax.
Modify and update the declaration for the prior period.
Before submitting the current tax return, examine and repair any mistakes or incompleteness on the prior return for the same time period, and ensure that all essential information is accurate and clear to understand.
Sending the declaration
Finally, send the declaration to the Zakat, Tax, and Customs Authority before the specified deadline, and make sure to follow any additional procedures required, such as signing the return or submitting it electronically via the electronic tax system if available.
How to calculate a tax return When calculating a tax return, companies must follow specific procedures to determine the tax amounts due, and the following are the main steps to calculate it:
Calculation of the tax collected on sales
The first step in calculating this type of declaration is to calculate the amount of sales tax, which is done by multiplying the total value of sales by the tax rate in force in the country or the entity in which the work is done.
Example
If the total sales value of the company during the specified period is 100.000 and the applicable tax rate is 10%, then the tax collected on sales will be 100.000 × 10% = 10.000.
Calculation of tax on purchases
The next step is to calculate the tax amount on purchases. Purchases include goods and services purchased during the specified period, which carry VAT.
Example
If the total value of purchases made by the company during the specified period is 50.000 and the applicable tax rate is 10%, then the tax on purchases will be 50.000 × 10% = 5.000.
Subtract the total of the two taxes to know the net tax due.
After calculating the tax collected on sales and the tax on purchases, the total of the two taxes is subtracted to determine the net tax due.
Example
If the tax collected on sales is 10.000 and the tax on purchases is 5.000, the net tax due will be 10.000 minus 5.000 = 5.000.
Conclusion
We can conclude that the tax return is not just a passing administrative document; it is a portal that opens for us to explore, analyze, and plan our financial lives, and an opportunity for us to look into the future and achieve financial sustainability. It also teaches us that compliance with financial and tax laws is not only a legal duty but also an expression of our financial responsibility, and it encourages us to evaluate our priorities. Defining our financial goals helps us build a sustainable and prosperous financial future, so let’s challenge ourselves to be responsible financial actors and to make this type of recognition an opportunity for financial growth and development. Only in this way can we achieve financial stability and build a bright future for ourselves and society as a whole.
Let’s learn how to deal with tax returns creatively and exploit them to our advantage in our journey towards financial and personal success. This can only be done using the Qoyod program, and it is worth noting that the program also offers all its customers: electronic invoice systems, point of sale systems, stores, customers, etc., making it the best accounting software.
Now that you know what a tax return is and how to calculate it, try Qoyod now for free for 14 days and enjoy being in the lead, as it is an integrated accounting program.
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