Tax Efficiency Saves Money

We’ll look at some examples of how tax efficiency saves money. Plus, introduce you to the main stars of this blog, the Toners. By claiming everything they can and making a few changes the Toners will save thousands in a tax year. It could be the difference between a holiday in Portugal or a day trip to Tramore! And there’s nothing wrong with Tramore although it has been a bit damp recently. The main things we’ll look at are

• Background
• Tax Information
• Claim Everything
• Tax Credits
• Summary

Background

Timmy is the dad. Married to Fidelma they have 2 sons. Gary aged 20 and Shane who is 19. Timmy is hitting the big 50 in July this year and Fidelma, who loves the gym, is a young 46. Timmy could do with going to the gym as his two favourite pastimes are eating and drinking. Both of the lads are in college full-time since September 2023. Gary is in UCC since September 2022 and Shane started in SETU last September. Timmy has a good job with a local multinational and some benefits like VHI, pension, and car allowance.

They have a mortgage on the family home with €275,000 left on it. There’s a tracker mortgage on the house. This was great a few years ago but the repayments have climbed a lot recently. Timmy’s salary is €95,000 a year and Fidelma works as a part-time nurse earning €25,000. Fidelma looks after Timmy’s mother. This is when she’s not spinning, doing Pilates, yoga & kettlebells in the local gym.

After one of her classes, Fidelma goes for a coffee with one of her mates. While just after buying a latte for €5 she’s giving out about all the money they are forking out on everything. College fees, rent, the mortgage, doctors, and medication. It’s all gone up. Mary, the buddy, says

“Why don’t you book a meeting with the lads in Comerford Foley? They look after Mike’s company finances and he’s always raving about them”.

Fidelma likes Mary and trusts her advice. She sets up a meeting and we ask Fidelma to bring in her 2023 tax information to see what they can get back.

Tax Information

Timmy & Fidelma call in with a wheelbarrow of paper. As Ger says, “All that paper gives me anxiety.” Timmy looks like he’s been dragged through a bush while Fidelma looks like she stepped off the catwalk. But a lovely couple. What I’m interested in is the income and expenses for 2023—and finding out more about their personal circumstances.

Incomes

Timmy’s earnings and deductions from Megamind Ltd in 2023 were

Gross Salary for USC	€100,000
Salary liable to Income Tax	€94,000
Tax Paid	€22,475
VHI – BIK	€4,400

And Fidelma’s income and taxes are

Gross Salary for USC	€28,000
Salary liable to Income Tax	€25,000
Tax Paid	€3,225

Expenses

Their main expenses that are relevant to their 2023 taxes are

College fees – 2 student contributions	€6,000
UCC College campus rent	€8,000
Monthly prescriptions €80	€960
Dental costs – Med 2	€2,500
Other doctors & consultants	€1,000
Mortgage interest paid in 2022	€3,500
Mortgage interest paid in 2023	€7,500
Fidelma supplies and nurses her uniform – allowable expense	€733

Claim Everything

Our motto when doing tax returns for clients is to claim everything we can. But don’t claim what you are not entitled to. This is to protect the client and minimise the tax liability or increase the tax refund. Let’s see how the Toner’s taxes turn out.

Total Tax

Income Timmy	€94,000
Income Fidelma	€25,000
Total Income	€119,000
Less Expenses	€733
Taxable Income	€118,267
First €74,000 X 20%	€14,800
Balance €44,267 X 40%	€17,707
Total Tax	€32,507

Tax Credits

To arrive at your tax liability, you deduct your tax credits from the Total Tax. The Married and PAYE credits for the Toners for 2023 come to €7,100. But by claiming the extra credits for 2023 what will their credits increase to? For 2023 their tax credits are

Married	€3,550
PAYE X 2	€3,550
Medical Insurance	€720
Mortgage Interest	€800
Medical expenses	€892
College Fees	€600
Rent tax credit	€1,000
Total	€11,112

Tax Refund

 To arrive at their tax liability or tax refund position you deduct the tax credits from the total tax. From that number, you then deduct the tax that they have already paid.

Total Tax	€32,507
Less Tax credits	€11,112
Tax liability	€21,395
Less Tax paid Timmy	€22,475
Less Tax paid Fidelma	€3,225
Tax refund due	€4,305

So, they are due a tax refund of €4,305. It will pay for a nice holiday in the Algarve. Sipping cocktails by the pool in Lagos. The Toners are happy that their two sons don’t go on holidays with them anymore. Gary mentioned that “he wouldn’t be caught dead going on holidays with the parents. Imagine the mortification” I bet he’d still turn up to the restaurant for the free dinner though!

Tax Credits

I want to give you a quick whistlestop tour through the extra tax credits the Toners can claim for 2023. This is so you can understand them a bit better and see if you can claim them or not.

Medical Insurance

Timmy’s employer paid the full cost of the medical insurance for Timmy and his family for 2023. Tony pays a benefit in kind [BIK] on that. That means he can claim the tax relief at source [TRS] as a tax credit against his taxes. The premiums for the family are as follows

Name	Gross	TRS	Net
Timmy	€1,400	€200	€1,200
Fidelma	€1,400	€200	€1,200
Gary	€800	€160	€640
Shane	€800	€160	€640
Total	€4,400	€720	€3,680

Timmy pays BIK on the gross premium of €4,400 but can claim the TRS of €720.

Mortgage Interest

The mortgage interest credit applies for 2023 only. It’s for your home and not a rental property. Once the balance on your mortgage is between €80,000 and €500,000 at the end of December 2022 then you can qualify. After that, to get tax relief, the mortgage interest you paid in 2023 must be more than the interest paid in 2022. The maximum credit you can get is €1,250.

We have claimed this for clients recently and what we need to claim it are

1. The mortgage interest cert for 2022
2. Mortgage interest cert for 2023
3. The balance on the mortgage at the end of 2022
4. Local Property Tax [LPT] ID of the home and
5. Confirmation that the LPT is up to date

The balance on the Toner’s mortgage at the end of 2022 was €275,000.

Interest Paid in 2022	€3,500
Interest Paid in 2023	€7,500
Increase in Interest	€4,000
Tax Credit 20%	€800

Medical Expenses

You can claim tax relief on unreimbursed medical expenses at 20%. These include doctors, consultants, prescriptions, and non-routine dental treatment. You need to get a med 2 from the dentist for non-routine dental work. Unreimbursed means where you paid for it and didn’t get the money back elsewhere. If you paid €1,000 for doctors and consultants and you got back €600, then you’d claim the €400 as a tax credit.

The Toners had qualifying medical expenses in 2023 of

Prescriptions	€960
Non-routine dental – Med 2	€2,500
Doctors & Consultants	€1,000
Total	€4,460
Tax credit 20%	€892

College Fees

2023 was the first year the Toners had the two lots of college fees. Both are doing full-time courses. There is tax relief on tuition fees paid for third-level education. You can claim for the student contribution but can’t claim for some other costs. Each claim is subject to a deduction of €3,000 for a full-time student and €1,500 for a part-time student.

Student contribution Gary	€3,000
Student contribution Shane	€3,000
Total	€6,000
Less disregard full-time	€3,000
Qualifying amount	€3,000
Tax credit 20%	€600

Rent Tax Credit

The Rent Tax credit is available for the tax year 2022 to 2025. For 2022 and 2023 the maximum tax credit for married couples that are jointly assessed is €1,000. For 2024 and 2025 that credit increases to €1,500. The credit is half those amounts for a single person. It’s possible to claim the credit when you are either

1. The property you are renting is your home
2. You are renting a second home or
3. You pay rent for a child to attend an approved third-level college course

You can’t get it if your landlord is a relation. Plus, your child must be under 23 at the start of the tax year in which he or she started the course.

In 2023 the Toners paid €8,000 to UCC college campus for Gary. The rent tax credit is 20% subject to the maximum relief

Amount paid in 2023	€8,000
Tax credit 20%	€1,600
Max rent tax credit for 2023	€1,000

Summary

 If you managed to stick with this blog to here, please clap yourself on the back. You are hardy and resilient! As we can see from the above Tax efficiency saves money for the Toners. We looked at a sample of some of the most common tax credits but there are plenty of others to claim. Everyone’s circumstances are different so that’s why we ask so many questions in a meeting. The purpose is to get a proper understanding of a person’s circumstances so we can give the best advice. The outcome is to get your money back that is resting in Revenue’s account. And remember you can go back 4 years, but no longer.

Stay tuned for next week. Timmy is going to buy a rental property and he wants to know about taxes if his mother passes away.

Need help to get your taxes right and save money? If so, start here