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Income Tax Returns - Ten Tax Tips Part 2

I am in the door from a venue that has neon lights and blaring loud music. And a lot of sweaty people. "I'm walking on sunshine" and the "Walk of life" were loud and clear. I was thinking that this is the closest I will get to a nightclub. A spinning class in the WIT Arena. And I survived. Despite doing my best Christy Moore impression on a stationary bike for 45 minutes. I thought this would set me up for the day but have hardly enough energy to press the keys on the laptop. And legs crying out for a hot bath with Epsom salts. This midlife crisis is going on for a long time now!

Last week we went through 5 tax tips when filing your Income Tax return. In case you missed it see here

This week we will look at another 5 tax tips that are

  • Flat rate expenses
  • Home carer Credit
  • Medical Expenses
  • Pre-letting expenses and
  • Tuition fees

Flat rate expenses

Certain employments get a flat rate expense, and you should include this on your tax return. For example, for nurses that supply and launder their uniforms the expense is €733 per annum. But where the hospital supplies and launders the uniform the flat rate expense is €258. An Agri adviser employed by Teagasc can claim an annual expense of €671. Pharmacists can claim €400 per year. And teachers and college lecturers can claim €518 per annum. There are 6 pages of different types of employments that set out the expenses an employee can claim. The purpose is to reimburse the employee for supplying uniforms, tools, or other costs. To see the list of employments that have a set expense click here

You can claim the expense on your annual tax return. The set expense for your employment should be on your annual tax credit certificate. If it isn't, you are losing out. How does it work? It reduces your income that is liable to tax. So, if you are paying tax at the higher rate of 40% you will save tax on the amount of the expense at that rate.

Billy Flynn is a nurse in Clonmel hospital. He is on a salary of €45000 per annum. He must supply his uniform, but the hospital launders it. His annual expense is €638. He is single

Total Income€45000
Less Expense€638
Taxable Income€44362
Tax Payable - first €3530020%€7060
Balance  €906240%€3625
Total Tax€10685


As Billy pays tax at 40% his annual saving is €255. Not a huge amount but it is a large amount over 10 and 20 years. And better in his pocket. If the set expense for your employment is not on your annual tax credit cert, then you can go onto MyAccount and claim it. If you complete a tax return you can claim it on that at the employment section. If you don't complete an annual tax return you can complete an online form 12 on MyAccount to claim.

Home Carer Credit

People miss this credit all the time. You can qualify if you or your spouse

  1. Earn less than €7200
  2. Are caring for dependents
  3. Are assessed together for taxes and
  4. Are married or in a civil partnership

The dependent person can be

  • a child that you get children’s allowance for,
  • a person who is over 65 or
  • a person who is permanently incapacitated due to mental or a physical disability

The person you care for must live in your home and this will be the usual case. But if you are caring for a person who is a relative of yours, they don't have to live with you. They must live in a neighbouring home or on the same property or within 2 kilometres of your home.

The tax credit is worth €1600 per annum. Where a couple has two incomes, they cannot claim the increased standard rate band and the credit. Tom Dunne and John Murphy are civil partners. Tom works for a local pharmaceutical company and earns €80000 per annum. John cares for his elderly mother who lives next door. They own a rental property together and for 2021 they have a rental profit of €8000. Their tax liability is as follows

First €4430020%€8860
Balance €4370040%€17480
Total Tax€26340
Less Tax Credits
Married/civil partner€3300
PAYE€1650
Home carer€1600
Net Tax liability€19790

   

If they don't claim the home carer credit they can claim the increased standard rate band.

First €48300 [increased by John's rental profit20%€9660
Balance €3970040%€15880
Total Tax€25540
Less Tax credits
Married/civil partner€3300
PAYE€1650
Net Tax Liability€20590


You will see that they are better off by €800 by claiming the home carer credit. One point to note here is that a lot of carers will receive the carer's allowance. While this is a source of taxable income it is not counted as income for this credit. For more information see here

Medical Expenses

This topic alone is worth a series of blogs, but I won't make you suffer yet. You can claim a tax deduction for most medical expenses at 20%. The most important thing is that you have a receipt for the expense. Common medical costs include doctor or consultants visit and prescription charges. If you use the same pharmacy, they can give you a printout of your prescription costs. You cannot claim for

  • routine dental treatment - fillings, extractions, checkups, etc
  • routine eye treatment - glasses, eye tests, etc
  • Over the counter medicines
  • Cosmetic surgery such as botox, rhinoplasty, or breast augmentation

To get the tax relief the medical cost must be on the advice or given by a practitioner such as a doctor or a dentist. For further information on what medical expenses you can claim see here.

Some medical expenses that are not as common and we have claimed for clients include

  • costs of IVF treatment
  • Special diets for coeliacs
  • Medical appliances like breathing machines
  • Wigs
  • Healthcare, accommodation & travel when getting medical treatment abroad
  • Dental care – The usual one is orthodontist fees [fancy gnashers like Jurgen Klopp]. Think braces, crowns, bridgework, etc

Nursing home costs qualify at 40% if you pay tax at that rate. You can claim for the part you pay but not for the part covered by the HSE under the Fair Deal scheme. If we follow the above example and assume that John's mother must go into a nursing home for the last 3 months of 2021. Tom and John pay €3000 per month. When completing their tax return for 2021 they will take a deduction for the nursing home cost.

Total Income€88000
Less Nursing home costs€9000
Taxable Income€79000
First €4430020%€8860
Balance €3470040%€13880
Total Tax€22740


You will see that they saved €3600 [€26340 to €22740]

You can claim these expenses on your annual tax return. If you have expenses to claim for a few years you can go back 4 years and no further. So, if you have medical or nursing home expenses to claim for 2017 then you have until the end of this year to claim them. Come 1 January 2022 you can only go back to 2018.

College/Tuition fees

Do you have two children or more in college? It is a very costly time for you so there is a small measure of relief. I wake up in a cold sweat thinking about this as could have 3 there at the same time. This relief applies to fees and the student contribution for third level courses. The fees must be for an approved course at an approved college. Costs that do not qualify for relief include

  • student centre levies
  • admin fees
  • USI levy
  • Sports centre charges

You disregard the first €3000 for a full-time student or €1500 for a part-time student. Mary and Tom Hayes have twin daughters doing Science full-time at UCC in 2021. They pay €3,250 for each daughter which is the student contribution of €3000 and a levy for the student’s centre of €250. The student contribution charge will qualify, and the levy will not. When completing their 2021 tax return, they will get tax relief as follows

Student contribution €3000 x 2€6000
Less disregarded amount€3000
Allowable amount€3000
Tax relief20%€600


There is also a ceiling amount that you can claim for a qualifying course. This is €7000. Also, if claiming for more than one person you only disregard one amount of €3000 or €1500. Fred and his wife Maria are in full time education in 2021. They pay €8000 each for tuition fees and the student contribution. Their claim is

€7000 x 2€14000
Less disregarded amount€3000
Balance to claim€11000
Tax relief20%€2200


You can claim the tax relief in the academic year the course commenced or in the year of payment. Dolores has one daughter doing a full-time course in UCD. For the academic year 2020/21 she pays the student contribution of €3000 in two instalments. She pays €1500 in September 2020 and €1500 in January 2021. For the 2021/22 academic year she pays the full student contribution in September 2021. If she claims the tax relief for the academic year 2020/21 or 2021/22, she won't get any tax relief for either year. This is because she must disregard €3000 for each year. But if she claims based on the instalments she pays, the story is different. For 2021 she can claim

Instalment in January 2021€1500
Payment in September 2021€3000
Total€4500
Less disregard amount€3000
Amount to claim€1500
Tax relief20%€300

 

For more information on this see here

Pre-letting expenses - Rental Property

The general rule is that there is no tax deduction for expenses incurred before you let the property. The exception is property management fees such as legal, advertising, or accountancy fees. Many such expenses to get the property ready for letting would not be allowable. This would include repairs and interest on a mortgage to buy the property. A change to the law came in to encourage landlords into the market. The change was to allow certain pre-letting costs as a deduction against the rents. This change applies to

  • expenditure on a premises that has been vacant for 12 months and
  • the owner lets the property as a residential premises between the 25th of December 2017 and the 31st of December 2021

The landlord must incur qualifying expenditure in the 12 months before letting. There is a cap on the amount you can claim of €5000 per vacant premises. For the expenditure to qualify you would have to get a deduction for the costs as if the property was rented. Costs such as repairs, cleaning, insurance, mortgage interest would qualify. These costs would fall under the heading of general allowable expenses.

Zach O'Neill inherited the family home when his mam passed away in January 2020. Zach lives in Boston and has no intention of coming back to Ireland. Rather than leave the property sit there he decides to let it out but must spend some money getting it ready. During 2020 he incurs the following costs

Painting€3000
Cleaning€500
Repairs [electrical & plumbing]€1750
Total€5250


If Zach lets out the property in 2020, he will not get a deduction for the costs as the property is not vacant for 12 months. But if he waits until January 2021 to let it, he will get a deduction for €5000 of the costs. This will be a rental expense in 2021 and reduce his rental profit for that year. For more information on this click here

Summary

There is quite a bit in this so if you are not asleep by now well done. There are so many tips and traps when it comes to taxes that you can never know enough. That even applies to us in the profession. Your adviser will be best placed to help you to reduce your taxes as much as possible. You need to make sure your return is right and that you are not costing yourself money or valuable time. Plus, you don't want Revenue to come calling and take a chunk of your money away.

Interested in talking to us. Call Deirdre on 051 396703 or contact us. Tell us a bit about you and your business and we will see if we can help.



 

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