Self Assessment Tax System >> Calculating Business Profits for Tax Purposes

Tags: taxable profits, tax deductions, self employed

Small businesses rarely use detailed accounting systems and in reality for a ‘one man show’ a sophisticated accounting system is not required. The Revenue (Tax Office) will require you to provide sufficient information to show how you calculated your profit and to have invoices/receipts in support of your figures.

Our Self Employed Income calculator will do the work for you and produce a simple Profit & Loss Account for the year and also calculate the tax allowance due for cars, and equipment used in running your business.

The following is a brief summary of the required steps for a small business when calculating their taxable profit.

Step 1: Total all sales invoices for your accounting period. Invoices must be issued on a timely basis throughout the year.

Step 2: Identify all your business expenses incurred during your accounting period. For a small business these will normally consist of the following;

  • Salaries paid to employees e.g. spouse or children.
  • Telephone/ Mobile
  • Travel
  • Motor Expenses
  • Rent for premises
  • Insurance
  • Light and Heat
  • General office costs e.g. stationery, postage etc.
  • Any other expenses incurred for the running of the business.

Step 3: Deduct the total for Step 2 from the total for Step 1 and that is your business profit.

Step 4: You have to add any element of private expenses to your business profit to arrive at your profit for income tax purposes. e.g. Motor Expenses personal use 1/5th of total then add 1/5th of your motor expenses to your profit at Step 3.

Step 5: Calculate your annual allowance for cost of equipment used in the business e.g. computers, cars etc.

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