With costs rising daily, everyone is under pressure to maximise their earnings. Reducing your individual tax is one way you can reduce the pressure on your bottom line. However, to receive the maximum benefit when you submit your annual tax return, it’s important you plan to implement these changes now at the start of the tax year:
- Increase your retirement contributions
Your contributions towards your retirement funds are tax-deductible up to the limit of 27.5% of the greater of your taxable income or remuneration (to a maximum of R350 000 per year). This applies to all the contributions you make towards your retirement – whether you are contributing to a pension, provident or retirement annuity (RA) fund during the year.
2. Open a tax-free savings account
The difference between a tax-free savings account and a normal savings account is that all interest, dividends, and capital gains that are earned will be tax-free. The annual limit on your tax-free savings account is R36 000 and there is a lifetime limit of R500 000. Once you reach this threshold, no further tax-free savings are permitted. You can choose to spread your annual limitations across as many accounts as you choose. However, it’s important to note that the annual limit can’t be carried over to the next tax year.
So, if you have only invested R20 000 for one tax year, you can’t carry over R16 000 to the next tax year. If you have children, you can also open tax-free savings in their names. However, any contributions you make on their behalf counts towards their annual and lifetime contribution.
The major advantage of a tax-free savings account is that you can reinvest your returns and they don’t contribute towards your annual or lifetime contribution. So, if you make R3000 during one tax year and chose to reinvest it, you can still invest your full R36 000 the following year – bringing your tax-free account to R39 0000.
3. Join a medical aid scheme
If you contribute towards a medical aid in 2022 you will receive a tax credit of R332 for the first two members and a further R224 tax credit for every member or dependent on the same policy. This is termed the Medical Schemes Fees Tax Credit by SARS, it’s a flat rate every month and is a direct reduction of your tax liability.
4. Donate to a SARS registered charity
A Public Benefit Organisation (BPO) is a non-profit organisation that does not have to pay tax on the donations it receives. Any contribution you make to a registered BPO is tax-deductible up to 10% of your taxable income. If you make a donation that exceeds this, it can be claimed as a deduction the following tax year. In order to claim the deduction, you must obtain an s18A tax certificate from the PBO.
5. Claim expenses if you earn a non-salary income
If you are an independent contractor or freelancer, SARS will allow you to deduct all your business-related expenses against your business income. These must be expenses that you incur in order to earn your income. To claim this deduction, it’s important to keep a record of these expenses and any related invoices.
For expert assistance with streamlining your individual or business tax, contact our tax specialists today.