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Calculating and Reporting Business Income

All self-employed persons must calculate and report their business income as part of their total personal income in Form B/B1. Freelancers, commission agents, hawkers, taxi drivers, sole-proprietors and partners in a partnership are self-employed persons.
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Sole-Proprietors and Partners

Generally, sole-proprietors and partners registered with the Accounting and Corporate Regulatory Authority (ACRA) are self-employed. You are also considered a self-employed person if you earn a living by carrying on a trade, business, profession or vocation.

Examples of Self-Employed Persons
  • Baby-sitter 
  • Commission agent (e.g. insurance agent, real estate agent) 
  • Direct seller 
  • Freelancer, i.e. you receive fees for providing services as a delivery rider, consultant, book keeper, graphic designer, fitness instructor
  • Hawker, i.e. you are the owner of a hawker business or a food stall 
  • Owner of a business that buys and sells goods and/or services 
  • Owner of an online business, i.e. you buy and sell goods or provide services through the Internet
  • Owner of your own practice (e.g. accountant, architect, doctor, lawyer) 
  • Private-hire car driver/ Taxi driver
  • Private tuition teacher, i.e. you are not employed by any tuition centres and you get your students through referrals
     
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Summary of Filing Obligations for Sole-Proprietors, Precedent Partners and Individual Partners

 Sole-ProprietorsPrecedent PartnersIndividual Partners
Type of Form to Report Business incomeForm B/B1Form PForm B/B1

 

Where to Report Business Income

Sole-proprietors should enter their income under "Sole-Proprietorship" > "Trade, Business, Profession or Vocation".

The precedent partner should file Form P and inform the partners of their share of the business income. Thereafter, each partner should enter their share of business income into their Form B/B1 when filing their individual tax returns as income under "Partnership" > "Trade, Business, Profession or Vocation".

e-Filing of Form P will be available from 1 Feb. If a partnership e-Files the Form P by 28 Feb 2021, the partnership allocation will be pre-filled in the respective partners' Form B/B1. With this pre-filling initiative, the precedent partner need not separately inform the respective partners of their share of the partnership income and the individual partners can enjoy the convenience of having their tax return pre-filled.

 

 

The individual partner should enter their share of the business income under "Partnership" > "Trade, Business, Profession or Vocation". 

However, if the precedent partner of the partnership e-Files the Form P by 28 Feb 2021, the partnership allocation will be pre-filled in the respective partners' Form B/B1.

How Business Income is Taxed

Business income is taxable at individual personal income tax rates.

Partnership income is only taxed in the hands of the individual partner at his personal income tax rates.The share of profit or loss allocated to each partner will be taxed under each individual partner's name at his personal income tax rates.

 

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Calculating the Adjusted Profit/Loss

Use this formula to arrive at the adjusted profit/loss for reporting to IRAS:

RevenueXX

 

Less: Cost of Goods Sold

 

(XX)
Gross ProfitXX
Less: Allowable Business Deduction

 

(XX)
Adjusted Profit/(Loss)XX
  

Revenue

Example

This is the total receipts of your business which may be:

  • bills paid or unpaid sent to customers
  • payments or fees received for services provided
  • sales proceeds from goods sold
  • the selling price of goods or materials used - but not for business purposes (for example, goods are taken from your stock for your personal use)

Revenue is the total gross  income received from your business.

Gross Profit/Loss

Example

Gross profit is the revenue figure less the cost of goods sold. If you have a service business, your gross profit will be the same as your revenue.

Allowable Business Expenses

Example

Allowable business expenses are expenses that you incur wholly and exclusively to earn your business income. Personal, private and capital expenses are not allowable business expenses. For details, please refer to Business Expenses.

Adjusted Profit/Loss

Example

This is the amount arrived at after deducting allowable business expenses from gross profit/loss.

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Preparing the Statement for Reporting Adjusted Profit/Loss for Sole-Proprietorship

Increase in Revenue threshold of 2-line statement to $200,000 for sole-proprietorship (YA 2021 onwards)

The revenue threshold for reporting of 2-line statement i.e. Revenue and Adjusted Profit/Loss, is increased from $100,000 to $200,000 from YA 2021 for sole-proprietorships. The raising of the revenue threshold from $100,000 to $200,000 for the filing of 2-line statement for sole-proprietorships is part of IRAS’ continuous efforts to simplify tax filing for small businesses. 

IRAS requires business income to be reported using a 2-line or 4-line statement. You should use the 4-line statement when your revenue is more than $200,000.  

2-Line Statement

You should report your business income using the 2-line statement when your revenue is $200,000 or less ($100,000 or less for YA 2020 and before).

First line

Revenue

 $____________________

Second line

Adjusted Profit

 $____________________

Example 1: 2-Line Statement of a Tuition Teacher

Example

Tina, a tuition teacher, earns $40,000 a year giving tuition. She earns ≤ $200,000 and, therefore, may report her income using the 2-line statement. In this case, her net earnings as a tuition teacher will be $30,000 (assuming her expenses is $10,000)

Revenue

$ 40,000

Adjusted Profit

$ 30,000

4-line Statement

You should report your business income using the 4-line statement when your revenue is more than $200,000 ($100,000 for YA 2020 and before).

First line

Revenue

$___________________

Second line

Gross Profit

$___________________

Third line

Allowable Business Expenses

$___________________

Fourth line

Adjusted Profit/Loss

$___________________

Example 2: 4-Line Statement of Seller of Mobile Phones

Example

Gerald buys and sells mobile phones. He sold $300,000 of mobile phone last year. The cost of goods sold was $120,000 and his allowable business expense is $20,000. Gerald should use the 4-line statement to report his business income.

Revenue

$  300,000

Less: Cost of Goods Sold

$   120,000

Gross Profit

$   180,000

Allowable Business Expenses

$    20,000

Adjusted Profit

$  160,000

Summary Table

 Revenue
Checklist$200,000 or lessMore than $200,000 and less than $500,000$500,000 or more
Prepare statement of accounts and keep proper records of your business transactionsYesYesYes

Report 2-line statement:

  • Revenue
  • Adjusted Profit/Loss
Yes  

Report  4-line statement :

  • Revenue
  • Gross Profit/Loss
  • Allowable Business Expenses
  • Adjusted Profit/Loss
 YesYes
 Revenue
Checklist$200,000 or lessMore than $200,000 and less than $500,000$500,000 or more
Submit certified statement of accounts and Computation of Adjusted Profit / Loss (XLS, 30.4KB)  Yes

Note: You may use the Computation of Adjusted Profit/Loss to show the tax adjustments to the accounting profit to arrive at the income that is chargeable to tax. Tax adjustments include non-deductible expenses, non-taxable receipts, further deductions and capital allowances.

 For more information, please refer to Prepare Statements of Account. 

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Preparing the Statement for Reporting Adjusted Profit/Loss for Partnership

You have to report the partnership income in the Form P using the 4-line statement.

First lineRevenue
Second lineGross Profit / Loss
Third lineAllowable Business Expenses
Fourth lineAdjusted Profit/Loss
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Calculating and Reporting the Divisible Profit/Loss for Partnership

Calculating Divisible Profit/Loss

Divisible profit/loss is the adjusted profit/loss minus partners' salaries, allowances, bonuses, CPF contributions, interest on capital and any other expenses paid on behalf of all the partners.

Use this formula to arrive at divisible profit for reporting to IRAS.

Adjusted Profit / (Loss)

XX

Less: Partners' Salaries

(XX)

Less: Partners' Allowances

(XX)

Less: Partners' Bonuses

(XX)

Less: Partners' CPF Contributions

(XX)

Less: Partners' Share of Interest on Capital

(XX)

Less: Expenses Paid on behalf of Partners

 

You can use this sample working sheet (XLS, 41KB) as a guide.
 
Please note that if the total taxable revenue of all your sole-proprietorship businesses exceeded $1 million in the last 12 months, or is expected to exceed $1 million in the next 12 months, you should register yourself for GST.

Example: Distribution of Divisible Profit/Loss Between Two Partners

AB Partnership is made up of Partner A and Partner B. It was agreed between Partner A and Partner B that a yearly salary of $26,000 and $24,800 will be paid to them respectively and the basis of sharing of divisible profit is 60:40.

For the year ended 31 Dec 2020, the partnership made a profit of $34,000 (after deducting partners' salaries). Partner A and Partner B have decided to retain the profit in the partnership for business use. The income for A and B will be as follows:

 Partner APartner BTotal
Basis of Sharing

 

60%40%100%

Salary for year ended 31 Dec 2020

$26,000$24,800$50,800
Divisible Profit on a Total Profit of $34,000 (60:40)

 

$20,400

(60% x $34,000)

$13,600

(40% x $34,000)

$34,000

 

Total Adjusted Profit (Salary + Divisible Profit)

$46,400

 

$38,400

 

$84,800

 

Partner A and Partner B's share of partnership income is $46,400 and $38,400 respectively. The income will be taxed under each individual partner's names even though the divisible profit of $34,000 was retained in the partnership account.

Reporting Divisible Profit/Loss

The precedent partner reports the income earned and business expenses annually to IRAS using Form P. You can use this sample working sheet (XLS, 35KB) as a guide. For details, refer to Filing for Precedent Partners.

After the precedent partner file the Form P, the precedent partner must inform the other self-employed partner of their share of profit or loss which they will declare as their business income in Form B/B1.

The precedent partner can refer to the responsibilities of the precedent partners for more details.

 

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