How to Calculate Provisional Tax

tax - calculate provisional taxWith the 2011 tax season in full swing, people around the country are scrambling to file their returns on time.

If you are a provisional taxpayer, the process is a little more complicated since you will need to calculate how much provisional tax you are required to pay. While calculating your provisional tax may take a little time, the process is not as complicated as some may think. We have provided a quick guide to provisional tax that will help you file your returns on time and with the minimum inconvenience and frustration.

Provisional Taxation

The amount of provisional tax you are required to pay is calculated according to an estimate of your annual taxable income. Remember that provisional tax is payable in three periods: the first period refers to the first six months of the year, the second period to the latter six months of the year, and the third period (which is voluntary) refers to the entire year.

Many taxpayers may be wondering why the third period exists, but don’t fear: you aren’t being taxed twice! The tax payable in the third period excludes taxes paid in the first and second periods – it simply exists to cover the difference between estimated tax payable and the actual amount of tax payable.

To Calculate Your Provisional Tax:

Period One – First half of the year

Provisional Tax = Half the year’s taxable income

  • LESS Employee’s tax deducted in the first six months
  • LESS Allowable foreign tax credits for the first six months

Period Two – Second half of the year

Provisional Tax = Total estimated tax for the full year

  • LESS Employee’s tax deducted in the full year
  • LESS Allowable foreign tax credits for the full year
  • LESS Provisional Tax paid in Period One

Period Three – This is a voluntary payment

Provisional Tax = Total tax payable for the year

  • LESS Employee’s tax deducted in the full year
  • LESS Allowable foreign tax credits for the full year
  • LESS Provisional Tax paid in Periods One and Two

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