4 ways to reduce your tax bill
As we approach the 31st October tax payment deadline, we’ve set out 4 ways that can help you to reduce your tax burden either now or in the future. All of these are perfectly justifiable and are not considered aggressive tax practices – they are simply good tax housekeeping that is sometimes forgotten.
Make a pension / AVC contribution
Let’s start with an easy one and probably the best-known way to reduce your tax bill. Making a pension contribution helps you build a nest egg for a better life when you retire, while gaining valuable tax relief on the contributions you make. Your contributions qualify for marginal (higher) rate tax relief within certain limits – we would be delighted to discuss the limits that apply to you. For more tax relief on pension contributions click here: https://advicefirst.ie/pensions/item/pension-tax-relief
It still amazes us how many people let this one slip by… You can claim standard rate relief (20%) for medical expenses that you pay – 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 to claim is also pretty simple. You claim as part of your tax return and you can even go back and claim for the last four years. There could be a nice little windfall for you there – surely this is worth a few hours of gathering your receipts together?
Annual gift exemption
When you die and leave wealth behind you, this often results in tax liabilities for the beneficiaries of your estate, in the form of Inheritance Tax (Capital Acquisitions Tax). 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. 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 Inheritance Tax liability.
Tax efficient protection products
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. Also, other specific life assurance policies and income protection policies qualify for income tax relief on the premiums. This whole 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.
So, as the tax deadline draws nearer, have you minimised your own tax bill?