Paying taxes in Australia is like how it is with every other country. You need to deal with your income, expenses, and the tax you have to face. However, this article will spotlight the tax expense, what it is, and other things an online seller or influencer should know about it.
What Is Tax Expense?
Tax expense is the total amount of money you have to pay to the tax office when you file your income tax. You can get the number by adding your total tax liability as well as an allowance, deductions, and other expenses you have.
In other words, tax expense refers to the taxes you pay on what you earned from all the profit you made. It is a way of paying for the government all the revenue you receive from your business.
What Is Tax Liability?
Tax liability is the amount of money you have to pay for all the income tax you earn for the year. It may also include other taxes, like sales tax, and other provisions that add to your total tax liability.
What Is The Difference Between Tax Expense And Tax Liability
Many people confuse these two terms “tax expense” and “tax liability” because of the similar names. But upon close observation and information, you will see that they are two different concepts.
Tax expense is the amount of money you will pay to the tax office when you file your income tax. They are different because the tax expense is the total of your tax liability, the allowance, and deductions you made. The other reason is that tax expense is sometimes confused with deductions.
On the other hand, the tax liability is the total amount of money you have to pay for your tax. It is a very accurate amount calculated from the total income you earned from your business or other sources of income. It is considered an actual amount you will pay for your income tax.
It is crucial to understand that you need to pay at least the tax expense whenever you file to avoid the possibility of getting into trouble.
How To Calculate Tax Expense
The first question that might pop up in your head is how to calculate the tax expense. It is not too difficult to do it once you understand the concept.
The first step is to total your income tax liability. It is the total income tax you should pay for the taxable year. It is important to note that you need to consider your taxable income if you estimate your tax expense.
Afterwards, add the expenses you had during the year. That is a rough estimation because some of the costs you had might not be taxable. Finally, add the two lines to get your tax expense.
Conclusion
The information regarding tax expenses is beneficial for every online seller or influencer. The tax expense is crucial for you to understand so that you will be in a position to file your income tax accurately. It is a way of avoiding mistakes and paying the amount of tax you need to pay.
The tax expense is different from tax liability. If you are a potential influencer or entrepreneur, make sure you understand how to do this calculation and minimise the tax expenses you have to pay.
If you are still confused and need someone to help you get started, come to us. The ECommerce Accountant is your accountant for online businesses. We strive to help online entrepreneurs minimise tax & increase profit.
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