Question

QUESTION 3 Jerry Maake, a sole trader, has been in business for many years preparing accounts to 31 December each year. His annual turnover has always averaged K980,000. For the year ending 31 December 2018, he estimated the tax adjusted business profits to be K585,000. Provisional income tax was computed and paid on the appropriate due dates throughout the tax year ended 31 December 2018, The actual taxable business profits for the year ended 31 December 2018 was calculated as K620,000 a) b) Explain whether or not Jerry is amenable and liable to pay provisional income tax [3] Calculate the provisional income tax paid by Jerry Maake for the tax year 2018, showing the due dates and the amount paid on each due date. [4] Calculate Jerry's final amount on income tax payable after giving relief for tax already paid. [3].

Answer 1

a). Ans : Jerry maake is a sole trader. Sole proprietor is not an employee, no income tax or self employment taxes are withheld from the owner's pay. The IRS requires that these taxes to be paid throughout the year, not just at tax time. That means a sole trader must make estimated tax payments each quarter ( April 15, June 15, September 15 and Jan 15 of the next year.

As a sole proprietor , the government generally requires you to make estimated tax payments if, you expect to owe at least $1000 in taxes for the year.

So , Jerry is liable for provisional tax payments.

b) . Calculation of provisional income tax paid by Jerry for the tax year 2018. Estimated business profit for the year ending 31st Dec 2018 is K 5,85,000.

Provisional income tax :

On 1st 2,50,000 = Nil

On 2nd 2,50,000. = 12,500

On 85,000. = 17,000

______________

Total . 29,500

Add : Education cess. 1,180

__________

Total Provisional tax 30,680    

Due dates and amount to be paid ( Provisional)

For estimated quarterly tax payment for each quarter total provisional income tax should be divided by 4.

Quarterly tax payment = K 30,680 / 4 = K 7,670

K 7,670 paid for each quarter.

Income received for the period.     Estimated tax due date

Jan 1 through Mar 31. April 15

April 1 through June 30. June 15

June1.through Aug 31. Sep 15

Sep. 1 through Dec 31 Dec 31

c) . Actual business income for 31/12/2018 = K 6,20,000

Income tax :-

On 1st 2,50,000. Nil

On 2nd 2,50,000. 12,500

On 1,20,000. 24,000

Total. 36,500

Add : Education cess. 1,460

Total tax. 37,960

Less credit for

Provisional tax 30,680

So, net tax payable.    7,280