6 + 1 tips how to handle last-minute tax returns

The first spring day already passed and the most challenging period of the year is waiting for us, at least in terms of taxes. As we informed you in the previous issue of Crowe news, on 1 April, the income tax return deadline will expire for both legal entities and individuals. Speaking from experience, preparing a personal income tax return is not a popular activity for taxpayers (unlike tax advisors). Many of them put off filing and preparing the tax declaration till the last moment. As a result of the pressure, returns include 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 perfectly manage preparation of the tax return, even at the last minute?

1) Clarify 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. There is no need to indicate income that is not subject to taxation and also tax-exempt income. Taxable income includes:

• Income from dependent activities (income from employment, from agreements outside of employment as well as from the income of statutory executives of s.r.o.);
• Income from entrepreneurial/business activity (from a trade license, independent professions, also from agricultural activities, or author contributions);
• Rental income from immovable property;
• Capital gains (income from dividends or interest);
• Other income, such as non-exempt gifts, income from the sale of property, winnings from competitions and lotteries or so-called occasional income, if it exceeds the limit of CZK 30,000 per year.

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 third party incomes without consideration (gifts) from most of the relatives and other close persons.

2) Do not forget the optimization

With 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. Below is a brief overview.

Tax allowances

• Interests from mortgage
• Payments for life insurance and supplementary pension insurance
• Contributions to labor unions
• Further education

Tax relieves

• For a taxpayer
• For maintained children
• Pre-school tuition fees, or so-called “školkovné”
• For a spouse
• For students
• For the disables

Every tax advantage must be documented in the tax return appendices. If you get into a situation where you will not be able to get the relevant certificates by the deadline for filing 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 corectly

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 to 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 crown 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's quite common. 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 tax return correctly

Even if the tax return is filled in no matter how well and all confirmations and certificates are enclosed, it would be a useless work if the return is filed with the wrong tax office. The tax office's jurisdiction is determined by permanent residence. Don't forget to check everything on the Financial Administration website: https://www.financnisprava.cz/cs/financni-sprava/organy-financni-spravy/uzemni-pracoviste/vyhledavani-up?ppsc=60200.

6) Pay tax liability 

The same period of time as for the filing of the tax return, i.e. in the case of the tax return for 2018 until 1 April 2019, applies to the payment of the tax liability. As with the filing of a tax return, there is also a period of five working days during which interest for late payment is not calculated and imposed.

However, we recommend not to delay 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? Apply for extension

If you already know that you will not be able to deliver your tax return for the previous year by April 1, 2019 to the tax office, there are several options 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 will be extended by three months, i.e. this year until July 1, 2019. However, to use this extension, you must deliver the power of attorney to the appropriate tax administrator by the end of March 2019. If you would like to use this option, please do not hesitate to contact us.