I made a really serious financial error in 2015 and I’m still (literally) paying for it now, at the end of 2016. Here’s what happened.
Although I’ve been a freelancer for over 10 years, 2015 was the first time that all my income was through my business, with no income from an employer.
Throughout the years, to me it always seemed that I was paying very little to bituah leumi (BL) and in income tax. There was even a period that I was living abroad and continued paying BL and the amount then was minimal (around 150NIS/month). And so when I became completely independent, I made a very wrong assumption that the BL and the income tax I’d owe would be minimal because my income wasn’t amazingly high.
And so, as I often do with things relating to government offices and money (because I find this stuff completely daunting), I pushed off properly finding out my pending expenses. Near the end of 2015 I finally hired an accountant who immediately told me I owed BL thousands of shekels and I was going to owe the tax department a few thousand more.
Any money I thought I owned turned out to be owed funds. This threw me into such a difficult financial position that I’m still working on pulling out of it, now, 12 months later.
My accountant really helped me through this time. For example, they were the ones who recommended I pay as much of the BL as I could before the end of 2015 – it seems this would lower the amount of taxes I owed for that year. They also helped me set up my payments for my owed taxes.
I feel quite stupid from the whole thing. There was money I spent during that time which wasn’t necessary and I wish I’d been more on top of things. And pushing things off often doesn’t matter (I once pushed off doing my hatzharat hon (declaration of capital?) for a few years and all that happened was that they fined me, although I was able to lower the fine just by asking nicely), but Lord almighty did it matter this time.
Following this painful experience, the main advice I try to give others is to make sure to properly set up your account with BL, the income tax department and, if necessary, with the VAT department. Try to have a hold on what each department is and approximately how much you’re going to owe each one, so you can calculate your prices and necessary income properly. Also, seriously consider having an accountant or yoetz mas (tax advisor), at least in the beginning, who is available to answer your questions and make sure you’re paying everything on time.
The other piece of advice I give people is to not feel like they have money when they think they do. But that might be a little extreme… :)
Photo by Fabian Blank