5 Tips for minimising your tax bill in 2020
1. Keep a record of everything
This may sound very simplistic, but it is amazing how many people don’t keep records. If you don’t know what you have spent, then how will anyone else? Making sure your paperwork is in order is the first part of not paying more tax. Although you’re not obliged to submit your receipts when you claim a tax refund you need to keep them as Revenue carry out spot check every year. This means keeping receipts for all your medical expenses, doctor’s visits and work-related expenses including telephone bills, rent, mileage and so on. You’ll need to keep these for at least 6 years as Revenue can carry out spot checks up to that point. By keeping records in an orderly fashion on an ongoing basis you will not only save money but a whole lot of time.
2. Claim your expenses
For both those in employed and those self-employed there are a range of different expenses that can be claimed. Which apply to you depends on your own individual circumstances.
For those in employment, medical expenses are by far the most commonly unclaimed tax relief and at 20% reimbursement on day-to-day as well as other medical outgoings it’s not to be overlooked. A very popular saving is by availing of travel incentives by way of either a TaxSaver commuter ticket, designed to encourage people to use public transport or the Bike To Work which was increased from €1000 to €1250 this year. These are just a few examples.
For those in self-employment, the situation can be different but there are a variety of tax relief claims that can be made including rent, rates and power, consultancy and professional fees, advertising as well as car, van and travel expenses to name a few.
3. Use your tax credits
A lot of people really don’t know what tax credits are and how availing of all those available to you can reduce your tax bill. A tax credit works by reducing the amount of tax that you pay by the size of the tax credit. So, for example, if you have a tax credit of €500, then that reduces your annual tax liability by that much. As well as the well-known personal and employee tax credits, there are a range of others available and many do go unclaimed each year. They include home carer tax credit, age tax credit, guide dog allowance and widowed parent tax credit to name but a few. It is well worth looking into the full range of these to see if you fall into any of the categories.
4. Start or top up your pension
Tax relief on your pension contributions is one of the very best ways to minimise your tax bill. You can get tax relief up to the relevant age-related percentage limit of your earnings in any year. The percentage increase the older you are. See the table below for the various categories. So, for example, a person who is 52 years of age and earning €90,000 can get tax relief on contributions up to €30,000.
The maximum amount of earnings considered for calculating tax relief is €115,000 per year. This is a great incentive to start a pension or to top up your pension with an Additional Voluntary Contribution (AVC).
5. File on time
I’m ending on a simple note again as often not keeping your records can have a big impact on whether an individual files on time. The penalty for filing your tax return late can turn out to be quite expensive. If you file late but within two months of your deadline passing, there is a 5% surcharge on the amount of tax liable, subject to a maximum of €12,695. If you're more than two months late, a 10% surcharge kicks in, with a maximum fine of €63,485.
Although the 31st October deadline for self-assessed tax has passed, you can still register to file online. To do this you must register for Revenue Online Services (ROS) if you haven’t already. The date for online filing is usually the middle of November but this has been extended to 10th December in 2020.
If you need to talk to an expert for some tax advice please contact us, we’d be delighted to help.