Tax Tips Prior to Year End Part 2
Welcome back to the second part of our tax tips that you can get on board with prior to the end of the year! We start off on our fifth tip!
Small Gift Exemption
This can be an effective way of passing on cash to children or others over time where both parents could gift €3000 to each child, on an annual basis, so that could be up to €6000 per child. If only one parent it could be €3000 to the child and if the child has a spouse or partner then they could also get €3000. Highly unlikely the parent would pay over €3000 to someone that their little darling recently hooked up with at the local disco!
The current parent child tax threshold is €310000 so passing on small cash amounts of up to €3000 each year doesn’t eat into that threshold. This can be particularly useful if there will be a larger inheritance in the future.
Unclaimed tax credits
Do you know for sure you’re claiming all the tax credits you can? The government gets enough out of us as it is, there’s no need to just hand our money over! At least, not without a fight. There’s items such as the home carers tax credit which is available where a couple are jointly assessed and one parent staying at home minding the children. Medical expenses can result in a tax refund based on 20% of the cost, which can come in handy when you’ve had some fancy dental work done over the years or paid for a medical procedure when not covered by a medical insurance provider! This also carries over to procedures such as IVF or consultants during a pregnancy, these are expensive enough times, every little helps! Tax reliefs, by means of an expenses deduction from their income, are available for nurses who launder their own uniforms, as are a host of other expenses that can be claimed in various employments. There are many tax credits you could be claiming so make sure you are not overpaying Revenue! Don’t forget you can go back and do a review for the last 4 years, in case you’ve gotten behind in your taxes!
Carrying on a business
There are a number of things you can do before the end of your tax year to reduce that hefty bill. Did your year go better financially than last year? Why not think about purchasing equipment or refurbishing before year end? If you purchase a new machine or piece of equipment and it is being used in your business you can claim tax reliefs on this. If the asset is energy efficient then there could be additional tax relief available. If you were thinking of doing it next year anyway, you may as well get started now. This way you can claim some of these expenses as deductibles and reduce your tax bill. New tax reliefs were introduced in the recent budget around the purchase of electric vehicles and how there would be no benefit in kind for an employee or director
Deed of Covenant
This is aimed towards people who are paying towards the upkeep of parents and your parents are not in the tax net or are only paying tax at the lower rate of 20%.
A Covenant is a legally binding written agreement made by an individual to pay a set amount to another individual, without receiving any benefit in return. To be legally effective, it must be properly drawn up. Only covenants in favour of certain individuals qualify for tax relief.
Unrestricted tax relief can be claimed on payments to incapacitated minors. Basically this is to a person who is under 18. However it is not possible for parents to get tax relief on payments to their own incapacitated children.
Similarly unrestricted tax relief can be claimed on payments to permanently Incapacitated adults
Tax relief can be claimed on payments to adults who are over 65 but there is a 5% restriction rule which is based on the total income of the payer.
In practice the last type of covenant is the one we see the most of. In terms of the restriction, total income is the taxable income of the taxpayer such as the profit from a trade/profession or income from an employment less expenses or capital allowances etc.
Don’t forget the mathsy bit:
Mary enters into a contract to pay her father €5,000 every year, for 7 years. Her father, who is 70, receives €4,000 of this every year and €1,000 goes towards Revenue, the 20% tax deducted on the covenant. However her Dad can claim that back so long as his annual taxable income is below €18,000.
One added advantage is that the covenant payment is also tax deductible for USC. This favours the payer as they will not only save tax at 40% but are also likely to save USC at 7%, 8% or even up to 11% for a high earning self-employed individual.
A little bit of charity never hurt anyone
Did you know charitable donations are tax deductible for companies? Only to the value of €1 million a year though! It reduces your company’s taxable income, which in turn, lowers its’ tax bill. Just make sure your chosen charity qualifies for tax-exempt status! Individuals can also make charitable donations and in that scenario the qualifying charity can get an additional 31% on top of the donation the individual made. Great for your karma!
To sign off.
We realise that as accountants, these terms and schemes come to us naturally. We’ve spent years studying our trade to make sure we know every in and out of any scheme you can think of. That’s why we’re here for you. If you’d like further information on any of the above tax advantages or would like to discuss your tax return, make sure to get in contact. We love to hear from you! Contact us today.