Have you a tax bill coming up?
It’s that time of year again - time to gather the receipts together and explore all the different ways to reduce your upcoming tax bill… or hopefully to maximise your tax refund. We’ve set out a few areas that you should examine, to keep as much of your hard-earned cash as possible. Each of these are perfectly legitimate methods of reducing your tax bill, and when added together can have a significant impact on the amount of money you get to retain for yourself.
Make a pension contribution
Whether you are self-employed or employed, there is usually an opportunity to reduce your tax bill through a pension contribution. There are pretty generous limits on the amount of pension contributions that attract tax relief, it’s important to know how much relief you can avail of. And the really good news is that any contributions qualify for marginal (higher) rate tax relief within those limits – we would be delighted to discuss the limits that apply to you.
Did you know, that if you were lucky enough to get a 1% interest rate compound return on your deposit account, it would take you 52 years to earn the return that this relief can give you, immediately, at the 40% tax rate.
Working from home and tax relief
The upcoming tax bills are in respect of the 2020 tax year, which of course was hugely impacted by the covid 19 pandemic. Some employers paid a working from home allowance for expenses incurred. 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
Bike to Work Scheme
Under the Bike to Work scheme, tax relief is available where your employer provides a bicycle and safety equipment for you, up to the value of €1,000. When you avail of the scheme to the limit of €1,000, the net cost to you (assuming 40% tax, 8% USC, 4% PRSI) will be €480. You get to choose the bike you want, you don’t have to use the bike for work every day and can also qualify even if you are working from home. And it applies to electric bikes too!
Medical expenses
This one can really add up over the period of a year – it’s important to keep every receipt for doctor visits, prescriptions, physio sessions, hospital consultations, x-rays and some specific dental expenses. You can claim standard rate relief (20%) for the medical expenses that you pay for you and your family and the process of claiming relief is pretty simple too.
Annual gift exemption
Any person can gift another person up to €3,000 p.a. without a tax liability. This can really add up and can be a very effective tool in transferring wealth to your loved ones.
Talk to Mind My Money on how a potential €1,000 tax bill can be turned into a €2,000 tax relief, immediately.
Can you employ your spouse?
If you are self-employed, employing your spouse (if they are not earning elsewhere) will result in an increased standard rate tax band – which can result in a significant saving. It’s important to note that employing your spouse must be commercially justified – but very often spouses are helping out their self-employed partner with tasks such as administration, bookkeeping, fulfilling orders etc.
Some protection products offer tax saving opportunities
Not all life assurance policies and illness benefits are the same. Some can be used for specific purposes while also attracting tax benefits – for example “Section 72” policies that are used to pay an inheritance tax bill are exempt from inheritance tax themselves. Also, other specific life assurance policies and income protection policies qualify for income tax relief on the premiums. It’s really important to get good advice, to ensure you are getting the right cover in place and are maximising any tax saving opportunities.
So, how much tax will you save yourself this year?
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