Income Averaging: Who Qualifies and What You Get
Learn how entrepreneurs can smooth out fluctuating incomes to potentially receive a tax refund through income averaging.
Income averaging allows entrepreneurs with inconsistent yearly earnings to spread their income over several years to potentially lower their tax burden.
Who it's for
This is intended for entrepreneurs who experience fluctuating annual incomes, where making much more or much less than usual in a single year results in a higher tax bill than if the income were spread out.
What you get
By calculating your income over a three-year period, you may become eligible for a tax refund. This helps smooth out the financial impact of years where your earnings were unusually high or low.
What it costs you
There is no direct financial cost to apply, but it does require your time. You will need to perform manual calculations of your income across the three-year period and then submit a formal request to the tax office.
The catch to know
This scheme is being abolished. You must check the current rules to see if your specific years of income still qualify under the final period allowed for this method.
How to apply
- Calculate your total income across a three-year period.
- Determine if averaging that income reduces your total tax liability.
- Submit a request for the averaging to the tax office.
- Visit the official portal for more details: https://www.belastingdienst.nl