How will you reduce your tax bill?
Tax is a necessary evil. If we want to live in a country with access to public services, taxation is the system used to pay for these services. We can (and do!) argue and moan about the different levels of tax payable and whether they are levied fairly. But at the end of the day, the money to be used for public services has to be collected somewhere.
While most people accept that tax must be collected, most people certainly do not want to pay more than their fair share. So as we approach the 31st October tax payment deadline for individuals (17th November if paid and filed electronically), we’ve set out 5 ways that can help you to reduce your tax burden either now or in the future. All of these are perfectly legitimate and are not considered aggressive tax practices – they are simply good tax housekeeping that is sometimes ignored.
Claim relief for your medical expenses
It still amazes us how many people let this one slip by… You can claim standard rate relief (20%) for all the medical expenses that you pay for – typically your own, your family’s and in some cases where you pay other people’s expenses. Most medical costs qualify and when you add up all those doctor visits, prescriptions, physio sessions, hospital consultations, x-rays etc., they can amount to a tidy sum. On top of this, some dental procedures such as crowns and gum treatments also qualify. Your claim is reduced by amounts claimed back from health insurers.
The process is so simple. You claim as part of your tax return and you can even go back and claim for the last four years. There might be the cost of a holiday coming back to you, to help the recovery from all your ails and to put Covid behind you...
Make a pension / AVC contribution
With this one, you need to make a pension contribution payment in order to gain the benefit, but there is a growing awareness of the need to provide for our own retirement needs. The state pension scheme is creaking at the seams and simply must change if it is to continue to be the foundation stone of retirement planning in Ireland. We all need to save for our futures, and pensions are usually the most effective way to do so.
Pension contributions attract a number of tax benefits,
- Your contributions qualify for marginal (higher) rate tax relief within certain limits
- Your pension fund grows free of all taxes
- You can take a portion of your fund tax-free at retirement, with other tax mitigating strategies being deployed in relation to the balance.
Tax relief on working from home
The upcoming tax bills are in respect of the 2020 tax year, which of course was hugely impacted by the covid pandemic. Some employers paid a working from home allowance for expenses incurred by employees who worked remotely. If not, you can make a claim for tax relief as part of your tax return and you will get money back from the taxes you paid. This refund will be based on a number of factors including,
- How many days you actually worked from home
- The cost of the expenses incurred
- Revenue’s published rate for calculating the cost of running a home office
Annual gift exemption
Another one to save tax in the future. When you die and leave wealth behind you, this often results in tax liabilities for your estate beneficiaries. One of the ways to reduce this tax liability is to gift money to your future beneficiaries while you’re still alive. Any person can gift another person up to €3,000 p.a. without a tax liability. So for example, a couple in their later years could each gift €3,000 to each of their children, sons & daughters-in-law and their grandchildren etc. every year. They don’t even have to be directly related. This could significantly reduce the amount eventually to be inherited and could significantly reduce or remove any tax liability.
Be clever with financial protection
Some people unfortunately still think that all life assurance policies and illness benefits are all the same. They are not. Some can be used for specific purposes while attracting tax benefits – for example Section 72 policies that are used to pay an inheritance tax bill are exempt from inheritance tax themselves. Others such as certain life assurance policies and Permanent Health Insurance policies qualify for income tax relief on the premiums.
This area can be quite complex. Give us a call and we’ll simplify it all for you and find the most tax efficient route for you.
And then there’s the rest…
And still there are many more reliefs and exemptions available, some of which may apply to you. So make yourself aware of all of the reliefs available. Whether you’ve kids in college, are taking a training course or are commuting on public transport or cycling to work, there are potential tax saving opportunities out there for you. A little bit of research or a conversation with us just might help you to reduce that unwelcome tax burden that you are shouldering.