Last month’s budget took another small step towards improving the tax situation for self-employed professionals with an increase in the SE tax credit. For the most part though, it is up to individuals and their accountants to ensure that tax returns are as efficient as they can be. As the tax return deadline is upon us, here we will take a brief look at some key deductions that should not be ignored..
PENSION CONTRIBUTION TAX RELIEF The main deduction we will look at pensions as the impact is not just year on year, but will affect your total fund for retirement. A major benefit of being self-employed is that you can claim pension payments as a business expense. By setting this up, you can effectively redirect your tax payments into your pension fund.
A pension contribution is an ‘allowable expense’ in your tax bill and writing a cheque for it is deemed to be a legitimate business cost for you. As such, even though you own the pension fund that you are paying in to, it is still treated as a business expense for you and reduces your taxable profit in that year. The tax relief you are entitled to with a Personal Pension / PRSA is age related. The older you get the more tax relief you gain. The below table will help you work out your tax relief entitlements, up to €115,000 of income is allowed.
If you are employed and are part of an occupational pension scheme (GMS Superannuation Scheme is included), it is important that you determine how much you may invest into each pension scheme as investment into occupational pension schemes can take priority over personal pension plans.
INCOME PROTECTION Most Income Protection Plans are now subject to tax relief at the highest rate of tax, up to 40%, meaning that your monthly premium will be significantly reduced depending on your earnings. To give a simple example, if a person earning €100,000 per annum takes out a plan to protect their income and the premium is €160, tax relief will bring that down to €96.
HEALTH EXPENSES You can claim relief on the cost of health expenses. These can be your own health expenses, those of a family member or any individual’s, as long as you paid for them. You receive tax relief for health expenses at the standard rate of tax, 20%. Nursing home expenses are given at the highest rate of tax, up to 40%. Qualifying expenses are the expenses you pay to receive health care. Health care (in this context) is defined as the prevention, diagnosis, alleviation or treatment of an ailment, an injury, an infirmity, a defect a disability. Health care also includes routine and maternity care for women during pregnancy.
COLLEGE TUITION FEES You can claim tax relief on fees that you have paid for third level education courses. This applies if you are a student or are paying the fees on behalf of a student or students. Relief is at the standard rate of 20% and the maximum amount you can claim is €7,000 per person per course. You can claim the relief if you have actually paid the fees but the following items are not covered: examination fees, registration fees and administration fees.
EMPLOYED CAREERS You can claim tax relief on the cost of employing a carer either if you employ one for yourself, or for another family member. A family member is a spouse, civil partner, child or a relative, including a relation by marriage or civil partnership. You can employ the carer directly or you can use an agency that employs carers. If you pay an agency to provide the carer, the agency will employ the carer and be responsible for their tax and social insurance etc. You can still claim tax relief on the cost of paying the agency to provide a carer.
This relief cannot be claimed in conjunction with the Dependent Relative Tax Credit or the Incapacitated Child Tax Credit. You can claim tax relief (at your highest rate) on the lower of the following two amounts – the actual cost incurred or a maximum deduction of €75,000.
HOME CARERS TAX CREDIT A Home Carer Tax Credit is given to married couples or civil partners (who are jointly assessed for tax) where one spouse or civil partner works in the home caring for a dependent person. For 2018 the credit is €1200 and this will rise to €1500 in 2019. A dependent person is a child for whom Child Benefit is payable, person aged 65 or over, person with a disability who requires care. A dependent person you are caring for cannot be a spouse or civil partner. They can however, be a relative by marriage, or someone for whom you act as a legal guardian.
MAINTENANCE PAYMENTS If maintenance payments are made for the benefit of a spouse, under a legally enforceable arrangement during the year in which the couple separates, then the spouse who makes the payments is entitled to a tax deduction for the payments and the spouse to whom the maintenance is paid is taxed on the payments.
Tax Relief may only be claimed on payments made under a legally enforceable arrangement for the benefit of the spouse or civil partner. Relief is not granted on payments for children.
These are just a few of the multiple deductions to take into consideration. Your accountant is best placed to advise you on your specific circumstances.