The methods of legitimately reducing your income tax bill have diminished greatly over recent years. This applies to self-employed individuals, PAYE employees and Directors of companies alike. A simple example of this, is tax relief on medical expenses has halved to 20%, and such modest relief is even subject to conditions.
Some financial stability has been restored in Ireland. The economy and incomes, and hopefully your disposable income, is improving. As a result personal debt levels are reducing, gradually. Deposit rates are at all-time lows. Taxation of such deposits is a penal 40% on interest.
Income tax relief is still available on pension contributions. Your retirement may seem like a long way off. Ultimately the choice of retiring or not is down to each individual. Technically, to benefit from a retirement fund you do not need to actually retire, just reach a certain age i.e 60 or 65.
Personal pension plans are designed to give yourself the option in the future of being able to afford to retire. Alternatively, if you choose not to make provision for retirement will you be forced to continue working, for financial reasons? Personal pensions are for people who don’t have a pension scheme through work, and who want to set aside provision for their future themselves.
The good news is the income tax benefits of pension funding are still unrivalled. The caustic pension levy on personal pensions is gone. Tax-free investment growth on pension funds continues. Therefore you can still turn €6,000 into €10,000 if you are paying the marginal rate of income tax.
The amount an individual can contribute for tax relief purposes is subject to your age, an earnings cap and your 2016 earnings. Revenue does reserve the right to request tax certificates for personal pension contributions. Therefore this document should be kept in case they are requested at a later stage. You must elect to backdate pension contributions by 31st October 2017 for 2016 tax year.
Pension planning remains the best tool for extracting wealth from your business. Have you considered a pension audit (contact us link)? You will need a financial broker to identify your net relevant earnings for tax relief purposes.
Your opportunity to reduce your 2016 income tax liability ends on 31st October 2017, or 10th November 2017 if you pay and file through Revenue On-Line Service (ROS).
Smart tax and financial planning now can help you give yourself the option of winding down to enjoy the lifestyle you wish for in later life.