6 + 1 tips how to prepare your tax return

Thus, many of them put off filing and preparing the tax declaration till the last moment. As a result of the pressure, tax return includes a lot of common mistakes generating extra work and what’s more - possible penalties from the side of the tax authorities. How to avoid mistakes and manage the preparation of the tax return without problems, even at the last minute and from home, without paying a visit to the financial office?

1) Research what is subject to tax

The first step in preparing your income tax return is to determine your tax base. It is important, therefore, to prepare an overview of all income received during the year and to clarify which of these incomes must be included in the tax return.

Taxable income includes for example:

• income from dependent activities (income from employment, from agreements outside of employment as well as from the income of statutory executives of Ltd., in Czech “s.r.o.”);
• income from entrepreneurial/business activity (from a trade license, independent professions, also from agricultural activities, or author contributions);
• rental income from real estates;
• capital gains (income from dividends or interests, including those from peer-to-peer loans);
• other income, such as non-exempt gifts, income from the sale of property (in this respect do not forget on income from sale of share within various trading platforms and from sale of cryptocurrencies, even if you have not transferred them to your personal bank account and you have re-invested them), winnings from competitions and lotteries or so-called occasional income, if it exceeds the limit of CZK 30,000 per year.

On the other hand, there is no need to indicate income that is not subject to taxation or is tax exempt. Such income, which shall not be included in the tax return, includes, for example, income from the sale of a family house or apartment where the taxpayer has resided for at least two years before the sale, income from the transfer of securities that the taxpayer has owned for more than three years or which do not exceed the maximum limit of CZK 100,000, property insurance claims or incomes without consideration (gifts) from most of the relatives and other close persons.

However, do not forget that even receipt of tax-exempt income may be subject to the notification obligation towards the tax administrator, namely if it has exceeded the threshold of CZK 5 million.

2) Do not forget to optimize

In this respect, the most important is to consider, whether the income may be decreased by relevant expenses. In case of income from entrepreneurial and business activities or from rent, the possibility to choose between actual expenses (based on bills and invoices from suppliers, recorded in so-called tax evidence) or so-called lump-sum expenses. As regards other incomes, it usually covers the purchase price of sold assets or fees related to its sale.

Thanks to tax advantages in the form of tax allowances or tax relieves, it is possible to reduce the tax liability. It is therefore important to consider what tax advantages can be used in a particular case.

Tax allowances covers:

• interests from the mortgage;
• premium payments for life insurance and supplementary pension insurance;
• contributions to labour unions;
• expenses for further education.

Do not also forget your good deeds. Should you financially support charitable purposes stipulated in the law or donate blood (such act is evaluated at CZK 3,000) during the last year, you are allowed to decrease your tax base by these amounts, up to 30 % of the value of the tax base. Please read the more detailed information in this respect here.

Once you calculate the tax, do not forget to take into consideration also tax relieves, namely tax relief:

• for a taxpayer;
• for maintained children;
• pre-school tuition fees, or so-called “školkovné”;
• for a spouse;
• for students;
• for the disabled.

Every tax advantage must be documented in the tax return appendixes. If you get into a situation where you will not be able to get the relevant certificates by the deadline for submission of a tax return, do not fall into despair. The tax return can be filed even without attachments and these might be subsequently supplemented at the tax administrator's request.

3) Round off accurately

Rounding errors are one of the most common errors in tax returns and lead to annoying additional communication with the tax administrator. Therefore, we recommend you follow the statutory rules.

Items in individual rows are usually rounded to whole crowns and standard mathematical rounding applies. This means that if the sum is fifty hellers, it is rounded up, below fifty hellers down.

The tax base is then rounded to the nearest one hundred crowns in the tax return, while the tax is rounded up to the whole crown.

4) Check carefully

Be sure to pay attention to the final review of your tax return, especially whether you have not forgotten to sign your tax return. Surprisingly, it is a quite common mistake. If you have a tax overpayment, do not forget to sign the tax overpayment recovery request, which is part of the return, but has its own signature box.

5) Submit correctly

Even if the tax return is submitted perfectly and all confirmations and certificates are attached, it would be useless work if the return is submitted to the wrong financial office. The financial office's jurisdiction is determined by residency (usually based on permanent residence or notified temporary residence).

Don't forget to check everything on the Financial Administration website here.

6) Pay tax liability in time and to the correct bank account

The same deadline as for the submission of the tax return applies to the payment of the tax liability, i.e. in the case of the tax return for 2020 until 1 April 2021, eventually until 1 May 2021, if submitted electronically. Please find more detailed information about deadlines here.

As in the case of filing a tax return, a certain liberation period applies here, during which interest for late payment will not be calculated and imposed. Interest for late payment is newly calculated from the fourth day after the date of the original tax due date.

However, we recommend not delaying the payment. The payment is deemed to have been made after the payment has been credited to the tax authority's account, and it may take up to 24 hours in case of a cashless payment, so it is good to pay the tax in advance.

+1. Not keeping up? Extend the deadline

If you already know that you will not be able to deliver your tax return for the previous year by 1 April 2021 to the tax office, there are several options for how to manage the situation. First and foremost, you have the opportunity to use the next five business days when the return is filed late but there is no penalty.

The second option is to ask the tax office to extend the deadline for filing a tax return, up to three months. However, this extension is discretionary. The tax administrator decides on the basis of the seriousness of the reasons given in the application for extension. Therefore, it is necessary to pay due attention to the preparation of such a request and not to forget that it is subject to an administrative fee and must be delivered to the tax administrator no later than on the expiry of the filing period.

Last but not least, there is an option to use the services of a tax advisor. Provided that the tax advisor will prepare and submit your tax return based on the power of attorney, the deadline for its submission is extended by three months, i.e. this year until 1 July 2021. If you would like to use this option, please do not hesitate to contact us. We actually enjoy the preparation of your tax return and the detective work related to it!