Season of Individual Income Tax

(SELIM Webzine, May 2016 No. 58)

Chang-Jin Kim

Representative Director/CTA

SELIM TAX-ACCOUNTING FIRM

It is said that May is the season of fresh green and Youth as everything is fresh and vivid in beautiful May.  But for individual who has income from the business or real estate, it is acknowledged as the season of tax filing for individual income.

Now the season of individual income tax filing is upon us.

It is broadly correct that you could not escape from the tax if you have income as the saying goes, ‘where there is income, there is tax'.  So if you have any income during the year for global individual income tax, you should file for tax in May of the following year.

The income has double-sided character.

One side is of obligation for tax burden on the income which has been emphasized traditionally, and the other is of source for consumption and asset acquisition.

The Taxable Capacity of Income and the Obligation for Tax Burden on that Income

As previously described, if you have any income, you should take the appropriate level of the tax burden (taxable capacity of income), and you should take the tax burden from the income (obligation for tax burden).  

Income as a Source for Funds

The other side of income is that it plays a role as a source for funds in asset building of income earner. 

I.e. if an individual acquires an asset with secret gains, national tax authority does not allow it as a source of funds for the asset acquisition.  The tax payment on earned income is an official acknowledgement on the source of fund for the asset acquisition in the future.  So it could change your understanding about income tax that the historical record of income tax payments of an individual becomes the historical record of fund source for the asset building.

Also the income of which the income tax paid could play a role as a tool for credit measurement.  The historical record of income tax payments and the earned income amount for each tax filing could be utilized as evidence tools for the evaluation by financial agencies and credit rating agencies.  The credit rating agencies take the details of the individual income tax filing as the most objective records for the evaluation.       

Eventually, it is necessary to consider the individual tax filing not only from the view point of the best reduction of tax, but also view point of the appropriate level of the tax on the other side. 

But the Tax-Tech is an important factor for business income earner in order not to take the unnecessary tax burden, no matter what kind of the view point for income taken.  This must be applied to all same, not only to business income earner.

And I would like to mention here about the subject how you can take the taxes as a part of expenses and effectively manage those on which I've been frequently asked.

Firstly, you should keep the evidential documents for tax, and secondly, you should file the proper tax report on time.  You might be disappointing as the obvious is stated here, but I'd like to say that ‘there is no royal road to effective tax management' as we have heard many time at school days ‘there is no royal road to learning'           

Keep the Evidential Documents

To keep the evidential documents for tax and keep those in good hands seems very easy particularly for small-size individual business owner, but actually it is not commonly implemented well in practice.     

The most important factor for the tax management is to keep the evidential documents and keep those in good hands.  The evidential documents include not only for the evidences for expenses, but also for the income deduction items.  It is said that it has become less important to keep those as the electronic data is available in the National Tax Service system, but it is more important to manage the type of expenditure for the effective evidential document management beforehand.  For example, securing the definite evidences of expenditure with a credit card or bank transfer is the most important points for the effective management for the tax related evidential documents.

File the Proper Tax Report on Time

When we refer the trend of the tax law revision or service direction executed by National Tax Service, we can see that the burden of penalty on failure of tax filing on time is getting bigger and bigger.  If you considering the burden of penalty, tax filing on time is also another way of tax management.       

20% of the calculated tax is to be charged for the failure of tax filing, and 10.96% per year of non-payment or underpayment of tax is to be added for the period the tax amount remains unpaid.   

And the penalty reaches 50% of the sales amount if the cash receipt is not issued for a sale transaction for some businesses (clinics and hospitals, professional services, private educational institutes, etc.).  My experience told me that, when the chips are down, the business income earner who was disposed for this penalty (because of the sales omission) felt too painful burden compared to the illegal act.   

Hope you take the income of the year 2015 as boastful medals and have the income tax filing done well in May, season of Individual Income tax.   

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