Estimate income tax

Estimate income tax

We encourage clients to estimate income tax (PAYG tax) and set aside money each month for income tax. This is so that you can be confident that funds will be available when your income tax is due to be paid.Estimat Income Tax

These instructions demonstrate how to estimate the amount of tax to set aside, based on your income for the period.

Check that your accounts are up to date

    1. Check that all transactions have been reconciled in the bank account

Run a Profit and Loss Report

    1. Run the Profit and Loss (Detailed) report to determine your profit for the period
      1. Select the period from the Date Range drop down
      2. Click Update

Estimate Income Tax Payable

    1. Use the ATO Tax Withheld Calculator to estimate income tax. Enter the following:
      1. Payee’s Name – ignore this.
      2. Payee received payments – Monthly
      3. Payee’s gross weekly earnings – the Net Profit from the above Profit and Loss Report
      4. Has the payee provide a Tax File Number (TFN)? – Yes
      5. What is the tax status of the payee – Resident
      6. Has the payee claimed the Tax Free Threshold? – Yes
      7. Does the payee have a Higher Education Loan Program debt? – Yes/No, depending on your circumstances
      8. Does the payee have a Student Financial Supplement Scheme debt? – Yes/No, depending on your circumstances
      9. Amount the payee claimed in Tax offsets – $0
      10. Is the payee claiming a Medicare levy exemption – No
      11. Is the payee claiming a Medicare levy reduction? – No
      12. Does the payee have a spouse? – Yes/No, depending on your circumstances
      13. Is the combined weekly income of payee and payee’s spouse, or the payee’s income as a sole parent, less than the relevant amount in table A? – No
      14. Number of dependant children  depending on your circumstances
      15. Click Calculate

Transfer cash to your Holding account

The amount returned should help you estimate income tax and is the amount you should transfer to your GST holding account.

This is a very rough guide, but it is more than adequate for estimating the amount to set aside each month for tax planning purposes.
NOTE: To determine how much to set aside to ensure that your GST obligations are covered, check the GST control account in Xero

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