How are different forms of income taxed on the income tax return?
In the case of income tax, the Tax and Customs Administration makes a distinction between different types of income. For income tax purposes, these types are divided into three groups (boxes), which you've probably heard about before. All boxes have their own tax rate:
Box 1: taxable income from work and home
All types of income fall into 1 box. This income, for example from your company and / or your (part-time) job, is therefore not taxed twice. Examples of income include:
1. profit from business
2. wages, benefits or pension
3. tips and other income
4. foreign income
5. income as a freelancer, childminder, artist or professional athlete
6. periodic benefits (such as annuity payments or maintenance payments)
Box 2: taxable income from a substantial interest
This is a tax on the benefit that you (or your tax partner) have in a company or cooperative.
Box 3: taxable income from savings and investments
The last box concerns assets, such as savings, shares or a second home. You do not need to state the actual income, for example the interest on your savings, the dividend on your shares or the rental income. On the other hand, you may not deduct the costs, such as interest paid.
A tax-free allowance applies in box 3. Is your capital not higher than the tax-free allowance? Then you will not benefit from saving and investing and you will therefore not have to pay tax in box 3. Is your capital higher? In that case, only the part above counts for the calculation of the tax in box 3. A fixed percentage applies to the value of your assets (assets minus debts) on 1 January, after deduction of the tax-free allowance. Your debts are hereby reduced by a threshold.
As you can see, there are three taxable incomes: box 1, box 2 and box 3. You calculate how much income tax and national insurance contributions you have to pay by applying the rates to the taxable income. Now you are lucky if you are a customer at The Bookie as we do that for you. For this we need to have all information complete. That is also the reason that you should follow an extensive income tax return checklist and provide additional information. Income is treated per box and taxed per box as much as possible.
PAY ATTENTION
You may not offset a negative income (loss) in one box with a positive income in another box.