The best way to calculate your income tax

Income tax has always been the biggest nightmare for every business owner, investor or even an ordinary working person. Every year the payment of income tax is an obligatory contribution to a government in most of the countries. Unless you’re using so-called “tax heavens’, but this article is not about it.

As per the law, every person receiving any kind of an income, either as an employee, business earnings, investments, rental earnings or any other taxable income, is a subject to payment of taxes on those earnings. Income tax is non-avoidable.

Every year, in April, or January, every income receiver is obliged to send a declaration of their income to HRMC, or similar tax authority. The important thing is to know how much you should pay. The accurate amount of tax to be paid to the government is important if we don’t want to either get charged for not paying enough or lose our money due to false calculations.

If you’re an employee, your company’s HR will sort that out for you, but if you’re self-employed, you have to do it yourself or use an accountant. They can be expensive if you have a small company. Many accountants advise the business owners to do their calculations first anyway. And the best thing to use is the income tax calculator, widely available online. But don’t be cheated by using “just any” online tax calculator, as it may cost you more than you think.

There are some important things to look for while searching for a reliable tool.

1. First of all, make sure that the tool you wish to use has latest official data from HRMC, if you’re in the UK (or similar to other countries). Of course, older versions are fine, but they may be only used as an example, not the actual calculator of your tax due.

2. Surprisingly, or not, the simple calculators are one of the bests. If the calculator is complicated you’re more likely to make mistakes. The ease of use and clarity are very important.
They should have a “how to use me” information, with explanations on each step. There should be a contact, in case you have questions and FAQ is also helpful. Check for Terms and conditions for reassurance and read a disclaimer too. It’s never bad to be over cautious. And, of course, the Privacy Policy, as you don’t want your data to be passed on to whoever, right?

3. Supporting details, which includes facts about the tax income, different tax rates and after-tax calculation information. It may sound vague, but this is the information you actually want to have. What band am I. How much money will end up in my bank account. What is I have overpaid last year (or even a few years back). This is data that they should have included and that you have a right to know.

Use online Income Tax calculators but keep my words in mind and you will have a peace of mind.