Episode 2: The Sole Proprietor “Going Solo: The Ups and Downs of Running the Show Yourself”

So, you’re considering starting your gig and becoming a sole proprietor. It’s like being your ship’s captain, navigating the business seas with the freedom to steer in any direction you fancy.

Let’s break down what it means to run solo—the good, the bad, and everything in between, including the bucks and risks involved.

What’s a Sole Proprietor Anyway?

Imagine you start selling handmade candles from your kitchen or fixing bikes in your garage. If you’re doing it all under your name, without signing fancy papers to create a company, congratulations, you’re a sole proprietor!

It’s the simplest way to run a business: no dividing profits, no board meetings, just you, your work, and your customers.

Advantages of Being Your Boss:

• Full Control: You call the shots. Want to take a day off? Go for it. New product idea? Run with it.

• Easy to Start: No need to fill out endless forms or wait for approvals. You can start selling right away.• Keep All the Profits: Every penny you make is yours to keep (after taxes).But It’s Not All Smooth Sailing

Disavantages of Being Your Boss

• Unlimited Personal Liability: This is the big one. If your business owes money or gets sued, your assets (like your car or house) are on the line.

• Raising Money Can Be Tough: Banks and investors are wary of solo acts. Loans can be hard to come by, and you might be putting your cash into the business.

• All on You: The business’s success rests on your shoulders. Sick days? What sick days? You’re the sales department, the marketing team, and customer service all rolled into one.

The Costs of Going Solo:

Are you starting your gig as a sole proprietor? The good news is that it’s way easier on your wallet than other business setups. You’ll mainly need the essentials: stuff to make or do what you’re selling, maybe a slick website, and an intelligent way to keep tabs on the cash coming in and going out. Trust me, you’ll want those numbers neat when tax season rolls around.We’re big fans of using Xero Accounting to keep your finances in check. It’s like having a financial wizard by your side. And for those piles of receipts and invoices? Dext is your new best friend. Snap a pic, and its AI brains turn it into neat digital records—no more crumpled papers in your neat digital records—no more crumpled papers in your pocket.

Here’s a heads-up: Starting in March 2024, SARS is levelling up with AI (Artificial Intelligence).

They’ll be sifting through your bank stuff, what you own and owe, and your investments and auto-checking your taxes. You’ll get 40 days to set the record straight if they get something wrong. So, the old tricks of hiding money? Forget about them unless you’re going old-school and stuffing cash under your mattress (not recommended).

Think long-term from the get-go. If you’re eyeing business as a way to dodge SARS, you might want to rethink that plan. The tech these days is no joke, and it’s getting smarter. Here at the Glass Castle, we’re all about helping folks with their eyes on the horison, building something that lasts. We steer clear of short-term schemers.

Being smart with your taxes doesn’t mean paying more than you need to. That’s where we come in. We’re tax pros who know the legal ins and outs to ensure you’re saving every penny possible without stepping over the line. Let’s make your tax situation as smooth as possible, all above board and stress-free.

Why noot call us today for a FREE strategy session Click in the link “The Hub“

Recommendation from an Accounting and Strategic value chain view:

Are you thinking of starting your own thing, maybe turning a hobby into a side hustle, or renting out that spare room on Airbnb? That’s cool, but let’s talk straight: running the show alone, like in a one-person business, can be a rocky ride. Why? Well, the money risks are sky-high, and don’t get us started on the tax bills—they’re enough to make anyone think twice about growing or scaling their business.

When it comes to your primary home, having it in your name can be a smart move. There’s this sweet spot where you won’t have to worry about paying a ton of tax on the profit if you sell it—up to R2 million is in the clear for capital gains taxes. Plus, if you’re flying solo and your Equity (Assets – Liabilities) worth is under R3.5 million (or R7 million for the married couples), you’re sitting pretty for keeping tax headaches low if you’re passing on your legacy as you will be paying estate duty taxes. We will have a complete series on Financial Products or Wills and Testaments chat with our friends at Attooh contact Email: Riaan.smit@attooh.co.za

But hey, if you’re dreaming bigger, like owning more properties or growing an investment stash, there are smoother roads than going alone. Different setups can save you a bundle on taxes and protect what you’ve built.

Curious? Hit us up for a no-strings, totally free 3-hour chat where we strategise the best moves for you. Let’s make your dreams a reality without the tax-time nightmares.”

“The Glass Castle Business Hub”

Trading in Your Name: The Personal Risk

Trading as yourself means that your stuff is at risk if things go wrong. Creditors can come after your savings, car, and even home. It’s like walking a tightrope without a safety net. Sure, it’s thrilling, but you’ve got to be careful not to fall.

“Tax Time for the Self-Made: A Simple Guide for Individuals and Sole Proprietors”

Let’s break this down into bite-sized (Grandular) pieces so it’s easy to understand. When it comes to personal income tax, there’s a bit to unpack, but I promise to keep it clear and not snooze-worthy.

When Do I Need to Start Paying Income Tax?

The tax man wants to know if you’re making some money. But there’s a bit of breathing room. For the tax year from March 1, 2024, to February 28, 2025, here’s the deal:

• If you’re under 65 and earn more than R95,750, it’s time to pay up.

• Between 65 and 74 years old? The magic number is R148,217.

• Over 75? You start paying tax if you earn more than R165,689.

How Much Tax Will I Pay?

Tax is like a staircase; the more you earn, the higher you climb, and each step has its rate. If you’re raking it in, it starts at 18% and can increase to 45%. Here’s a quick run-through:

Taxable income (R) Rates of tax (R)

• 1 – 237 100 18% of taxable income

• 237 101 – 370 500 *R42 678 + 26% of taxable income above 237 100

• 370 501 – 512 800 *R77 362 + 31% of taxable income above 370 500

• 512 801 – 673 000 *R121 475 + 36% of taxable income above 512 800

• 673 001 – 857 900 *R179 147 + 39% of taxable income above 673 000

• 857 901 – 1 817 000 *R251 258 + 41% of taxable income above 857 900

• 1 817 001 and above *R644 489 + 45% of taxable income above 1 817 000

For taxpayers aged 75 years and older, this threshold is R165 689.

Juggling Jobs? Here’s What You Need to Know

Have you got income from more than one place? This is where it gets tricky. Each job might not take enough tax off, and when you add it all up, you could owe more at the end of the year. It’s because all your income gets lumped together, and then the tax is calculated.

Example Time!

Say you’re over 65 and have two jobs, one paying R240,000 and another R160,000. Together, you’ve earned R400,000, but the tax taken out by each job doesn’t cover the total tax you owe. You might owe a chunk of cash when tax time rolls around.

Don’t Stress, There’s a Fix!

To avoid a big bill at the end of the year, you can ask your employers to take a bit more tax out of each paycheck. There are two ways to do this:

Simple Method: Let your accountant apply for a tax directive at a calculated rate as advised by the tax specialist to deduct the tax that covers your total earnings from all jobs.

Specific Method: This method is a bit more complex. Your Accountant can register you for provisional income tax (IRP6) and calculate twice a year to ensure you pay the right amount so you’re all squared up by year-end, you have a third payment if cash flow is tight.

Medical Tax Deductions:

Let’s break down the Medical Scheme Fees Tax Credit (MTC) in a way that’s easy to catch. Think of the MTC as a helping hand from the taxman to make your medical scheme payments a bit lighter on your wallet. It’s been around since the 2013 tax year, which started on 1 March 2012, but it didn’t kick in for everyone simultaneously. Here’s how it rolled out:

If you were younger than 65, you could start using the Medical Tax Credit from 1 March 2012.

Starting 1 March 2014, people 65 and older got in on the action a bit later.

Now, About Those Tax Credit Rates

From 21 February 2024, things haven’t changed from last year, which makes things a bit easier to remember. Here’s how it breaks down, month by month, in Rands (R):

For just you (the taxpayer) or if you’re paying for a dependant who’s in a medical scheme and you’re not, the credit is R364 per month.

If you and one dependant or two dependants for whom you’re not in the scheme, you’re looking at R728 per month.

Have you got more than one extra dependant? Each additional person you cover bumps up your credit by R246 per month.

Interest Exemptions: The Lowdown

The government gives you a bit of a break on the interest you earn, allowing you to keep some of it tax-free. The amount you get to keep without paying tax hasn’t changed recently, which is excellent for planning your finances.

• If you’re under 65 years old, you can earn up to R23,800 in interest per year without owing any tax.

• The deal is even sweeter for those 65 and older. You can earn up to R34,500 in interest per year tax-free.

Withholding Tax on Interest: For the Globetrotters

Now, if you’re not living in South Africa but earn some interest from there, things get a bit specific:

From March 2015, if you’re a non-resident, the entity paying you the interest deducts a 15% tax from your interest earnings. Think of it as them doing some tax work for you.

But here’s a silver lining: If you’ve been out and about, not setting foot in South Africa for at least 183 days in the year before you earned this interest, and if the money you’re earning the interest from isn’t tied up in a business you have in South Africa, then you’re off the hook for this tax.

So, whether living it up in South Africa or exploring distant lands, knowing these details can help you manage your savings and investments more smartly, keeping more of that hard-earned interest in your pocket.

What’s Dividends Tax All About?

Imagine you’ve invested in a company by buying some of its shares. When that company does generously and shares its profits with its shareholders (like you), it pays dividends. Dividends Tax is a tax on this money you get. Instead of you sending a chunk of that cash to the tax office (SARS), the company or a middleman takes care of it and sends it on your behalf. It’s a bit like the company saying, “Don’t worry, I got this,” and handling the tax part of your dividends for you.

This tax applies to dividends paid by companies based in South Africa or foreign companies whose shares are up for grabs on a South African exchange. But unique” headquarters companies” are exempt from this tax.

Why Do We Even Have Dividends Tax?

South Africa wanted to keep up with how other countries do things, so it made the person getting the dividends (not the company handing them out) responsible for the tax. This switch from the old system (STC) to Dividends Tax also made South Africa look more inviting for international investors. It was a move to shake off the image of having a high corporate tax rate, which wasn’t great for business vibes or the country’s appeal to outside money.

Who’s Supposed to Pay Dividends Tax?

The short answer is the person getting the dividends. But, in reality, the company or another entity steps in, takes out the tax from your dividends, and sends it to SARS for you. However, if they don’t take out enough tax, you (as the owner of the dividends) would need to settle the difference with SARS. In some cases, like when dividends are paid out not in cash but in some assets, the company itself might need to handle the tax directly.

How Much Tax Are We Talking About?

Since 22 February 2017, the dividend tax rate has jumped from 15% to 20% unless you don’t have to pay it or qualify for a lower rate. If you get R100 in dividends, R20 of that is heading to SARS, leaving you with R80 unless there’s a reason you’d pay less or none at all.

And that’s Dividend Tax—it’s all about ensuring that when companies share their profits with you, everyone plays fair with the taxman.

The 101 on Retirement Fund Lump Sum Withdrawals

So, you’ve got a pot of money in a retirement fund, right? This could be in a pension, provident fund, or maybe an annuity ticking away for your golden years. Now, if you decide to take a chunk out of this pot before you hit retirement (or because of other reasons like a divorce), that’s called a lump sum withdrawal.

How’s the Tax Calculated?

Imagine all the withdrawals you’ve made since March 2009 are puzzle pieces. The tax folks, SARS, are interested in the whole picture, not just the latest piece. They’ll look at every piece you’ve added to the puzzle since then, tally it all up, and that’s what they base your taxon on. They’ll also subtract any tax you’ve already paid on pieces of the puzzle you added before your latest withdrawal.

The Tax Rates for Withdrawals

For the tax year stretching from 1 March 2024 to 28 February 2025, things are staying steady:

Up to R27,500: You’re off the hook—no tax.

R27,501 to R726,000: You’ll pay 18% on anything over R27,500.

R726,001 to R1,089,000: There’s a fixed charge of R125,730, then 27% over R726,000.

Above R1,089,001: You start with R223,740, then 36% on the extra.

And What About Severance Benefits?

Severance benefits are like a financial “see you later” from your job, maybe because you’re leaving or your job is ending. The tax drill is similar here. SARS looks at all the severance benefits you’ve received since March 2011, plus any retirement fund lump sums since October 2007, and calculates your tax based on the total.

Severance Benefit Tax Rates:

For the same tax year, here’s how severance benefits are taxed:

Up to R550,000: Zero tax, which is nice.

R550,001 to R770,000: You’re paying 18% on the amount above R550,000.

R770,001 to R1,155,000: There’s a base tax of R39,600, plus 27% on the excess over R770,000.

Over R1,155,001: Your starting point is R143,550, then add 36% of whatever’s above R1,155,000.

Whether it’s a lump sum withdrawal or a severance benefit, the key takeaway is that SARS doesn’t forget. They keep a running tally, ensuring that the tax you pay reflects everything you’ve withdrawn over the years. It’s like your financial footprint with them; they use it to determine what you owe. Keeping these rates and rules in mind can help you plan better when you need to dip into your retirement savings or navigate the waters of severance benefits.

Wrapping It Up

And there you go! Tackling personal income tax isn’t as tricky as it seems. These straightforward tips allow you to breeze through the tax season without sweat. But hey, if you’re feeling overwhelmed or want to ensure everything’s spot-on, the Glass Castle Business Hub has your back. We’re armed to the teeth with all the know-how on accounting, tax, and ensuring you’re playing by the rules. Ready to get your tax game on point? Give our CEO, Glenys Dempers , a ring at 079 896 3511 or email over to glenys@theglasscastle.co.za. Let’s make this tax year a breeze together!