All across Ireland thousands of self-employed individuals, company directors, landlords & others are currently contemplating the arduous task of preparing their 2019 tax return that is due to be filed next month.
Everyone wants everything filed accurately minimising the risk of a Revenue enquiry into their tax affairs. However, people also want to reduce their tax bill. They only want to pay what they need to and not a cent more.
Here are 7 simple steps you can take in 2020 to reduce your tax bill:
1. Pay money into a pension
Pensions are a very tax-efficient way of saving. The Government provides generous tax relief at your highest tax rate to encourage people to pay into their pension.
Your age and your earnings for the year will determine the maximum amount that you can pay into a pension which will attract this tax relief.
If you pay tax at the higher rate of 40% then for every €1,000 you pay into a pension plan you could potentially reduce your tax bill by €400.
Another big advantage is that if you make the pension contribution before the 31st October 2020 deadline you can backdate the relief to help reduce your 2019 tax bill.
2. Claim relief for your employer paying medical insurance on your behalf
If you pay medical insurance directly to a provider, then do not need to claim the tax relief from Revenue as the relief is given as a discount on the cost of the policy.
However, if your employer pays medical insurance for you or your family on your behalf then you may be entitled to an additional tax credit in your tax return.
To claim the relief you will need to provide the following information on your tax return:
- the date the policy started
- who is covered on the policy and their ages
- a breakdown of the cost of the policy for each person
- the amount paid by your employer
3. Claim the Home Carer Tax Credit
A Home Carer Tax Credit is a tax credit given to married couples or civil partners who are jointly assessed for tax, where one spouse or civil partner works in the home caring for a dependent person.
A dependent person is a:
- Child for whom Child Benefit is payable
- Person aged 65 or over
- Person with a disability who requires care
The Home Carer credit could potentially reduce your tax bill by a straight €1,500 for 2019. To be eligible for full relief, the home carer must not earn more than €7,200 a year (although they can earn up to €10,200 in 2019 and still get some relief), while the other partner may be better off benefiting from the higher cut-off point for the standard rate of tax, depending on their earnings.
4. Claim the Year of Marriage Tax Credit
If you got married during 2019 you may be entitled to claim the Year of Marriage Tax Credit.
You will continue to be taxed as two single people in 2019.
You may however qualify for a refund. You qualify if you pay more tax for the year, as two single people, than you would if you had been taxed as a married couple. If you are due a refund, it will only be given for the portion of the year that you were married.
For example, if individually you both paid €10,000 each i.e. €20,000 in total in tax in 2019 but your tax bill as a married couple would be €16,000 in total, then you can claim some or all of the difference of €4,000 owed to you depending on how long in 2019 you were married for e.g. if you were married for 6 months in 2019 you would get €2,000 relief.
5. Claim Income Continuance tax relief
A lot of people know they can save money by paying into a pension but far fewer know that contributions to an income continuance scheme, or income protection scheme as they are more commonly known, may also be eligible for tax relief.
The relief you can claim is limited to 10% of your total income for the tax year.
6. Claim Home Expenses
If you an employee and you worked from a home office in 2019 you can claim an allowance, assuming your employer is not already giving you one.
You need decide where the line between home and work sits. Costs you can partially deduct include lighting, heating, phone, broadband and home insurance. There is no hard-and-fast rule, but make sure what you deduct is reasonable to avoid setting alarm bells ringing.
The new e-working guidelines aimed at PAYE workers who have been working from home during the pandemic (and who will be entitled to claim tax relief next year for 2020) offer a good rule of thumb. Revenue considers it reasonable that 10% of household bills apply to work. If you are an e-worker, you will be able to claim via Revenue’s MyAccount system.
7. File on Time!
One of the easiest ways to “save” on your return is to file on time, thereby avoiding penalties or interest. If for some reason you miss the deadline it could cost you a lot of money.
There is a 5% late filing surcharge, calculated based on your 2019 income tax liability, if you file within two months of deadline and this then doubles to 10% if you do not file within 2 months of the deadline.
Also failure to keep up to date with your tax obligations will result in your Tax Clearance Certificate being revoked. This can be especially problematic for those businesses who require this certificate to access much needed COVID-19 Government supports like the Employee Wage Subsidy Scheme for example.
Talk to a Professional
You should talk to your accountant about how you can claim these credits or others that you may be entitled to. By working with a professional it ensures you get everything right on your tax return and you are making the best savings available to you.
At TaxAssist Accountants we have worked with thousands of individuals across Ireland on their tax returns. If you need assistance filing your income tax return you can call us on 1800 98 76 09 or submit an enquiry online to book your free initial consultation.
Last updated: 8th October 2020This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.