Self employed taxation query

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gilboy

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If a self-employed person with a small retail business takes 400 euro out of the business account each week as a wage. At the end of the year he would have withdrawn 20,800.

If at the end of the year the business has made a profit of 5k(i.e. after 20,800 wage + other expenses), does this mean his PRSI and income tax calculations should be done on 25,800, i.e. 20,800 + 5k?

Similarily, what happens if the business where to make a loss of 5k. What would the PRSI + Income tax be based on

Thanks!
 
you should not look on the 20,800 as wages in calculating the profit if you are operating as a sole trader.
In your example the profit for the year is 33,800 after all allowable expenses and tax and PRSI etc. will be assessed on this amount.
It is irrelevant how much the owner takes out of the business during the year.
 
Thanks for this callybags. Just for clarification, you did mean to put 25,800 rather than 33,800, right?

So in a nutshell, the money withdrawn from the business account does not constitute an allowable expense, right?

Thanks
 
Sorry... should have been 25,800.
Because there is no separation between the owner of the business and the business itself (unlike the situation of a limited company, which is treated as a separate entity) all the profits of the business are treated as personal income.
You could take out all the profits and call it a "wage expense" to reduce the profit to zero but you would still be liable for income tax on the wage received, winding up with the same tax liability.
Hope this makes sense!
 
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