Tax doesn’t have to be taxing – a tax refund may be on the horizon
When you submit a tax return, you show proof of your expenses. This allows you to enjoy the tax benefits.
Right now, the cost-of-living crisis has pushed South Africans to use every way to earn more money.
One of these engines starts up once a year. This is when South Africans file their tax returns. They want to learn how much, if anything, the government owes them as a tax refund.
You will receive a tax refund if you paid more tax during the year than you owe.
This will only happen if you had tax-deductible expenses during the year. Your employer did not include these expenses when calculating your monthly tax.
When you submit a tax return, you show proof of your expenses. This allows you to enjoy the tax benefits.
Tax filing season has just begun. For many, it can be a time to receive money instead of giving it away—if they do it right. To get a tax refund, you need to go beyond an ‘auto assessment.’ The details often hold important information.
As a result, many people avoid going there, which can be risky for them.
What you need is a dream team. You need a financial adviser who can give you good advice. This adviser should understand taxes in a tough economy.
You also need a tax expert to help with your tax return. They will make sure everything is correct.
1. Adopting a long-term strategy for retirement funds
Why not let the taxman help you with your retirement planning? After your financial adviser figures out how much you need to save, you can save in a smart way that reduces taxes.
Investing in a retirement savings plan can help you save on taxes. This includes options like a pension or a retirement annuity fund. Your contributions are tax deductible, but only up to certain limits.
The idea is simple. You save money to retire comfortably and not rely on the state.
Because of this, the government will refund part of your retirement contributions. If your employer helps with these contributions, you might also get a tax benefit during the year. This can increase your take-home pay.
Your financial adviser can find out the maximum tax-deductible contribution you can make. This depends on your salary and taxable income.
If you contribute R30,000 each year, which is R2,500 each month, it can be tax-deductible. If your tax rate is 31%, you will receive a tax refund of R8,100.
2. Your medical scheme contributions can be made more cost-effective by the taxman
The South African Revenue Service (SARS) has a tax credit for medical scheme contributions. This means that part of your contributions reduces your total tax bill.
The 'Medical Schemes Tax Credit' is a benefit for those who pay into a medical scheme. The amount of the benefit depends on how many dependants you have on your plan.
This benefit goes to the main member of the scheme. It is based on a set monthly amount for each dependant. SARS checks this amount every year.
If you have a medical scheme through your employer, they help pay the contributions. The tax credits will usually be considered when your monthly tax is calculated. In this case, you will not get a refund at the end of the tax year. This is because you have already received the benefit during the year.
If you have your own medical plan and it is not from your job, you can get a tax credit when you file your taxes.
Talk to a tax expert if you are unsure about filing a return for this reason.
3. Incurring medical costs doesn't necessarily imply financial hardship
If you do not have a medical plan and pay for all your medical costs yourself, you may qualify for a tax deduction. This also applies if you have a medical plan but it did not cover all your medical expenses during the tax year.
SARS allows you to claim a tax deduction for qualifying medical expenses you paid for yourself. A specific formula helps determine how much tax refund you can get.
This amount depends on your taxable income. Remember, you might not qualify for a refund. However, it could be helpful to talk to a tax expert to be sure.
Your financial adviser can help you find cheaper ways to cover large, unexpected medical costs. This could include a medical scheme if you don’t have one, or gap cover.
4. Working from your home office
If you have a permanent job and worked from home last tax year, you can claim home office expenses. SARS says that if you work from home and have a room for your job, you can deduct some expenses for your home office.
However, there are a few conditions to consider, so it’s important to read the “fine print.” For example, your office must be in a separate room in your home. It should be set up for work purposes.
You also need to do more than 50% of your work from this home office. Just working at your dining table or in your bedroom will not qualify.
If over 50% of your pay comes from commission or performance-based payments, other rules will apply for this refund.
Talk to a tax expert about your situation and if you can get this deduction. Remember, claiming a home office deduction may lead to Capital Gains Tax (CGT) when you sell your home. Make the refund count
You received the refund. Now what should you do? There is no right or wrong answer. However, making smart financial choices will help you in the long run.
Talk to your financial adviser about your options. You have many choices. You could add to your retirement savings to boost it.
You might also settle some debt. Perhaps you want to send your child on an important school trip. You could even decide to take a much-needed holiday.
The way you make a decision is almost as important as the decision itself. You need to be sure you are making an informed choice after considering all the facts.
This tax season, remember that you don’t have to do it alone. Reach out to your dream team. Get your documents ready and take advantage of the refund opportunities available to you. Your future self will thank you!
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