It’s tax season! Learn some of the mistakes people commonly make when filling their taxes.

Tax season is once again upon us. Some of the early birds have completed filing their taxes and have received their refunds (if any) from LHDN. For those that haven’t gotten to completing your respective filing, please proceed to do so before the deadlines provided, so that you don’t get into any trouble with LHDN.

Without wasting any more time, let’s look at the common mistakes that most of us might have done or might do in the future with regards to our income tax.

#1. Forgetting to Press Submit When You Complete Your e-Filing

Don’t laugh. This actually happened to me back in 2012.

Usually, I am very diligent in completing my own income tax filing. However, in YA 2012, while I was filling out the e-filing form online, I notice there was a mistake in my EA form that was provided to me by my employer. So, I saved the form I was working on, and emailed HR to inform there was a mistake and they need to reissue me a new EA form with the correct details.

Fast forward three years later, I received a letter from LHDN saying that they are fining me for not paying my taxes. This was a shock to me, because I was still on MTD (Monthly Tax Deduction) at that point of time. So I went into my EzHasil portal and found that I had forgotten to click submit. Just because of that, I was originally fined 20% of the amount I was supposed to declare (based on the income stated in my EA form).

Long story short, I had to do a manual submission and pay LHDN a penalty of RM200 for late submission, but still had to pay the fine pending my appeal being reviewed and approved. Thank god I had all my documents available, so it wasn’t that hard. Also, thanks to my tax agent for assisting me within liaising with LHDN on this matter.

#2. Misplacing Your Receipts or Supporting Documents

Most of us generally throw away most of the receipts that we have because we don’t know how important they can be. This is especially true when you are talking about income tax declaration.

According to the Income Tax Act, we need to keep all supporting receipts or documents that are used to support our income tax declaration for 7 years from the date of filing.

For people on employment income, this is much simpler. The number of receipts you need to keep in your files is very minimal. Generally, it will be related to the personal reliefs such as book purchases, internet bills, etc.

For business owners, including those who are self-employed, this becomes more complicated. Your receipts will include other types of expenses that you could use to reduce your business profits such as meal receipts, etc.

Failure to keep your receipts that you have used to support your income tax declaration can get you into hot soup with LHDN.

#3. Not Understanding How Tax Relief Works

Most taxpayers are entitled to an exemption on their tax returns through reliefs, which reduces the amount you have to pay when you file your taxes. However, these are subjective and can vary from individual to individual. The list of reliefs might also change on an annual basis. This list is usually available on LHDN’s official website.

There are two main mistakes people generally do with regards to tax reliefs:

  • Not taking advantage of the tax reliefs that have been outlined to help reduce their tax payable. This includes reliefs for items such as SSPN, PRS, Life Insurance etc. Those in this group just didn’t practice proper tax planning, but there would not be any additional action from LHDN for anyone who didn’t take advantage of the facility provided.
  • Claiming for reliefs that are not applicable to you. I have personally seen people claim all reliefs that is available so that they end up paying less tax to LHDN. This is considered tax evasion, and you might be fined up anywhere between RM300 to RM10,000, imprisoned or both.

#4. Under-Declaring Your Income

Many people, especially those who are not earning fixed salary, do not declare their side income. This includes landlords who rent out their property to their tenants. I have conducted talks on this and when I highlight this point, one of the questions I always get asked is – oh, have to declare?

Yes, you have to declare all your income that has been outlined under the Income Tax Act. Even if your side income is small compared to your main income (salary from employment), you still need to declare it. The Act is not called Employment Income Tax Act, or Large Income Tax Act, it is called Income Tax Act.

Among those who generally do not fully declare income are those in the gig economy or are self-employed. This includes insurance and unit trust agents, sales agents, MLM agents, etc. Most of them have the understanding that LHDN will NOT know how much they earn because they don’t pay MTD.

Wrong!!!!

As long as you are tied to a legit company that pays their taxes and submits their documents to LHDN, then LHDN will know how much you earn from these companies. There is this thing call for CP58 that they will send to LHDN that tells LHDN this is how much they have paid to you for the past year. The reason why the companies do this is because this is proof to LHDN that they have paid this income to you so that they can officially deduct the commission payment as an expense which then reduces their own business-taxable income.

You can be penalized an additional 200% of the tax payable (that was undeclared) if you get audited and found out by LHDN.

#5. Showing Off Your Wealth on Social Media

Did you know that LHDN has a dedicated team that prowls social media sites looking for people who might not have fully declared their income to LHDN?

Showing off your Ferrari or any other luxury vehicle might be a bad decision for you to make, especially if you haven’t declared your income properly to LHDN.

Same thing when you show off your expensive handbags, lavish mansions etc. LHDN will take note, and check whether you have been dutifully filing your taxes. If your lifestyle doesn’t match the income declared to LHDN, guess what? You would probably be called in for a friendly audit.

#6. Not Separating Your Personal and Business Income Effectively

For those that have side hustles, or businesses, in addition to employment income, it is very important that you separate your personal and business income properly. Any drawings from your business to you might be considered an income and you will have to declare it and will have to pay additional tax on that amount.

For those in this situation, you might want to spend some money to engage a tax agent who can plan both your personal and business taxes more efficiently so that you can legally reduce the amount that you pay to LHDN in terms of income taxes.

#7. Paying Zakat to Avoid Paying Tax

I personally know a lot of people in this group. Most of them choose to do this because they would prefer to pay Zakat instead of paying tax to LHDN. To be honest, there is nothing illegal about it. That is their personal choice.

However, do you know by doing that, you might end up paying more instead of less?

The main reason behind this is that there are reliefs that are allowed to be deducted when you file for your taxes. If you choose to convert all your MTD into Monthly Zakat deduction, you will not be able to take advantage of those reliefs and this will have some impact to your overall cashflow.

Paying excess Zakat will not entitle you to any refund from LHDN as LHDN will only provide refunds to taxpayers only, meaning for people who actually give them money. Makes sense, right? Who in their right mind would give you a refund if you gave extra money to someone else?

Conclusion

Hopefully, you have learnt something from the sharing above. If you haven’t file your taxes yet, please take note of the mistakes highlighted earlier before you press submit. For those that have dutifully filed your taxes, maybe save this article so that you can refer to it next year.

 

What kind of tax filling mistakes you ever experienced before?

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