Around sixty percent of Americans don’t oust paying taxes as they find it difficult. It’s true that filing tax is a difficult task as it demands a lot of paperwork, time, and effort.
Taxes might be a valuable certainty in everybody’s life but it still holds plausible circumstances of delayed results, the occurrence of errors, and maximum time constraints.
This might be the reason why people don’t want to pay their own taxes and rather take the help of professionals in order to avoid errors.
Since taxes are not fixed every year, due to personal and business reasons, there are chances that the tax you filed previously and the tax filed now has a huge difference.
This makes tax filing more arduous. The world has become truly global now and so is the tax policy updated every year depicting the new trends to be known and followed accordingly.
The tax authorities have lately been focusing on increased tax revenues along with ensuring eligibility for a common ground to everyone who is paying taxes. Since every business is technically and adversely affected by taxes, it is an avid reason to be well-versed about the current tax laws and trends.
Here are the Tax Trends 2020-21
1. Digitalization in Tax Reporting
Tax reporting digitization is the trend that is of great concern to major corporations and individuals as it grants a more precise way to look into taxes. It requires businesses to come up with every minute detail of their business assets and tax files to tax authorities.
The tax submission itself is a hectic process demanding a lot of preparation. and you should be prepared for tax season. With digitalization, it has become even more important to submit every format and report.
Countries such as Spain and Australia are focusing more on technology to simplify their tax auditors’ workloads. Spain has recently launched a virtual system to manage the tax filing system which includes intercompany transactions, data transfer, and online intermediation during tax submission. ‘Alex your Virtual Assistant’ is Australia’s new digital tax assistance that is used for noting all the taxpayer’s queries.
The tax authorities now demand better insights with the use of new technology and this also leads to more audits. The businesses have to perform regular internal reviews, data collection, and restructuring financial processes to make sure that they are doing the taxes in the right way. They have to interact with the automated tax software or system which demands not only a significant knowledge of their taxes but also knowledge about technology.
The tax digitization is not only deteriorating the taxpayer’s workload. On one side where there are increased audits, the other side is benefiting the tax auditors. The tax auditors are using the latest technologies to endure creative ways to provide better services to the taxpayers. Since technology in tax ensures no error, the taxpayers don’t have to worry about the increased tax amount.
Here are some of the effects of digitalization on tax
- The tax authorities are collecting more data which is leading to a more valuable taxpayer group.
- The tax authorities are rapidly shifting from manual work to Artificial Intelligence and Machine Learning practices.
- The tax authorities are preferring Value Added Tax over other tax types and accounting treatment.
- With more digitalization and real-time data, the tax authorities are demanding more submissions from the taxpayers.
2. The Freedom of Freelancing
According to Freelancers Union and Upwork, 56.7 million Americans are now doing freelance work with a total increase of 3.7 million in the last five years. Obviously they participate in the economy in different ways. The rise of freelancers can be calculated with options such as work freedom and a bonus with their 9-5 office routine.
It is not false to say that freelancers are their own accountants and bookkeepers and to avoid tax issues, they must be focusing on their accounts. The freelancers must record what their expenses are, and how much they spend on their travel.
The freelancers need to ask for tax forms from their clients and make a habit of keeping money aside for quarterly estimated tax payments. Keeping a record helps in balancing their overall tax amount and annual returns.
The organizations have an HR department, accountants, and bookkeepers to manage their financial concerns but a freelancer is all of it himself. They must know what should be adopted that doesn’t bother their work and also keeps a check on their daily expenses. If this is not possible, the freelancers should definitely hire an accountant or a helper to manage their expenses as at the end of the day it is going to affect the taxes.
Eric Nisall, accountant and writer says ‘ Everybody is selling the dream but nobody is talking about the reality.’ She further says it is important to have a life and work for your dreams but it is also true that you have to pay the taxes and for that, you have to keep a record of the income you have from your freelancing job.
The business and freelance experts advise keeping an account of potentially deductible expenses such as travel, technology, and office expenses especially when you are a freelancer. To make the work easy, freelancers can use the technology boost and use software that helps in managing work, organizing daily reports, and also keep a track of every single penny spent. QuickBooks, one of the preferred choices of SMBs and freelancers can be a great help here.
As a freelancer, you should keep a record of the following
- Gains that you have made from a property in the form of rental return or sales gain.
- Any extra income that you have gained from the employer during extra-hours
- Income accumulated in a savings account or fixed deposits
- Incomes from equity, trading, or debentures
- Any other extra income source or the profits you gained from the source
No matter if you are a full-time employee or a freelancer, you can apply for tax cuts. If you have the right documents and if your required expenses are booked, it is easy to submit taxes with less intervention from the tax auditors.
3. Changing Tax Rules
Tax rules and regulations keep on changing from time to time. From the European VAT system to developments in tax reform in the USA, it is evident that keeping a check on tax rules is imminent.
Recently, the European Union discussed that it would like to see alignment between all accounting and tax principles in the federation provided set up of a definitive VAT regime in 2022.
It has become essential for companies to be aware of the changes and all the measures that will take place every year. The companies focusing on online trading platforms need to be more careful handling the EU’s VAT regime.
In India, companies are subjected to an additional dividend distribution tax(DDT) at 21% on the number of dividends distributed to shareholders. Such dividends are exempted from any further tax in the hands of the shareholders except certain resident non-corporate shareholders.
From 1 April 2020, the tax on dividends has shifted from the company to the shareholders. For non-corporate shareholders, such dividend income would be taxable at 20% and the company would be required to withhold the applicable tax.
The US tax authorities have further made it easier for America to have their profits and repatriate their money even when there is an increase in transaction or acquisition prices. The OECD( Organization for Economic Cooperation and Development) model treaty states that the PE(Permanent Establishment) tax liability is deemed to be in existence for a parent company if its subsidiary in the jurisdiction has the authority to conclude contracts in the name of the parent company.
Taxes indeed affect the global economy and the business incentive will play a great role in defining the economic status of the country. You have to know how to manage your assets, file the taxes, concede the right documentation, and also remember to ensure that you are saving as much tax as you can(legally).
The government offers various incentives such as R&D tax incentives to attract foreign investment in order to help the growth of the local economy. The government provides incentives such as exemption of corporate income tax, supplementary tax deductions, increase/decrease of personal income tax for employees but to gain profits from these incentives it is important to submit the required documentation.
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