Pay less tax (legally!)

Tax can be a bit of a dirty word – no one likes paying it, and the more you have to cough up, the less there is left to spend! The new tax year is just around the corner, so it’s a great time to look at where you can trim your tax.

While tax evasion (such as not declaring part of your income) is illegal, there are some perfectly legal ways to pay less tax.

Here are some ideas – they may not all apply to you, but you can hopefully benefit from at least one or two!

1. Running a home office

These expenses may be tax-deductible, whether you work for yourself or an employer. There are certain rules that apply such as you need to have a separate space set up as a home office and must spend more than 50% of your working time at the home office.

Some deductible expenses may be proportionate, such as rent or interest on your bond and other expenses may be deducted at the full amount such as stationery or fiber.

It’s important to keep a tight record of all your expenses and to work out your home office expenses: https://www.taxtim.com/za/calculators/home-office-expense-calculator.

2. Business travel

If you receive a travel allowance or drive a company car keep a logbook so you will be able to claim travel deductions.

3. Paying it forward

You can donate up to 10% of your income and this will be tax-deductible. You have to give money to SARS registered Public Benefit Organisation (PBO) – here are a list of them – https://www.sars.gov.za/businesses-and-employers/tax-exempt-organisations/approved-section18a-pbos/).

You’ll need proof of your donation to be able to claim, but what a great way to benefit yourself while making a difference in someone else’s life at the same time.

4. Medical matters

Belonging to medical aid means paying less tax. The taxman actually deducts money from the income tax that you pay if you belong to medical aid. It’s a flat rate and is currently R322 per month each for the first two members, R224 for each additional member per month.

5. More money from your investments

The taxman takes his cut from your investments, including the tax on interest earned, dividends paid, and tax on the capital gain when you cash in the investment.

This means less money in your pocket. With tax-free savings plans, there is no tax payable and all of the investment growth is yours. You can invest up to R36,000 per tax year, with a maximum of R500,000 in your lifetime.

You can have as many accounts as you like (as long as you don’t exceed R36,000 per month), and you can even open an account for a child.

6. Nest egg for old age

Investing in a retirement annuity or belonging to a company pension or provident fund is a great way to pay less tax. The money you put in reduces your taxable income (maximum of 27.5% of your income with an annual limit of R350,000).

So the more you contribute, the less tax you pay.

What’s clever here is that the taxman is helping you to build up a tidy nest egg for old age. If you want to see the impact of this tax saving, download the SA Tax Calculator app or use this handy calculator https://onlinetax.sagesouthafrica.co.za/Mobi/Calculator/Calculate where you can also see the impact of medical aid contributions.

If you have spare cash, you could also put that into your retirement savings and boost your tax benefit. You can start drawing this money from age 55, taking one-third in cash, and using the rest to pay you an income.

The first R500,000 cash may be tax-free, depending on what other lump sums you have been paid previously.

It’s certainly not smart to pay more tax than you should. If you need to get advice, speak to a tax consultant or a financial planner, but make sure that every cent you earn is working as hard for you as it can.

This article was written by Sylvia Walker, financial planner, speaker, and author of smartwoman. www.sylviawalker.co.za

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