Reduce your tax bill

People who don’t file their tax return online had to have had their tax return completed by last Friday October 31st, for the 80% of people who do file online the return needs to be completed by Thursday November 13th.

What this means is that by next Thursday self-employed people or anybody who has tax to pay under the self-assessment basis needs to file and pay in respect of 2013, i.e. last year. They will also have to pay preliminary tax for 2014 by the same date.

Most people believe this only has an impact on directors or self-employed but by right all individuals including PAYE workers should be making a return every year. If for no other reason than to claim the millions of euro each year that goes unclaimed in medical and dental expenses.

(I should stress at this point even though I have sat tax exams I am not a tax advisor but what I do have is a good working knowledge of the tax system)

What people don’t realise is that there are still ways to reduce last year’s tax bill now. Let’s take an example. Let’s say you are self-employed and your accountant has just called you and said you need to pay €20,000 to revenue before next Thursday. That is €10,000 for 2013 and €10,000 in preliminary tax for 2014. You could just write the cheque and be done.

Or you could do something different. If you write a cheque for €5,000 for your pension and you are able to allocate all of that €5000 into 2013 and it attracts income tax relief at 41% you will get a double whammy.

Firstly last year’s tax bill will be reduced by 41% of the €5000 in other words €2050. But remember the preliminary tax you pay is 100% of last year’s bill. So by reducing last year’s bill you also reduce the pre-lim by the same amount i.e. you reduce your prelim bill by €2050 also.

So your choice is write one cheque to revenue for €20,000. Or you could write a cheque for €5000 into your own pension and a reduced cheque to revenue of €15,900 and still be completely compliant with your taxes. So for an extra €900 outlay you clear up your tax bill and get €5000 into your pension.

Now this is the important bit, you need to ensure you now start contributing to a pension because if you don’t you will find next year your bill will be increased without the tax relief from the pension.

But one thing that many people don’t realise is that writing a cheque into your pension today and having that allocated to last year’s tax bill is not just for the self-employed and company directors. Any paye worker can do this also. So if you are a paye worker and have some surplus cash sitting on deposit and you haven’t maximise your pension contribution for 2013 there is still time.

The nice thing for the paye worker is they have already paid the tax so if they were to write a cheque they will be due a tax refund!

As regards where to invest you pension shop around, there are lots of bespoke products available on the market that might suit but if you are going mainstream be conscious of entry and exit costs as well as ongoing fees.

If people want to start looking at reducing this year’s bill there is still some film finance available until the end of 2014 and EII is still ongoing.

 

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