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With the festive season approaching, putting thought into tax issues may not be on many Santa lists. However, there may be several tax saving ideas that you are missing out on this Christmas. The following is a list of ideas that you may consider implementing before the year end, and which may be of some benefit to you from a tax perspective. Obviously, not everything will be relevant to your specific circumstances, but you should be able to take something away from this read.
1 . Avoid increased Surcharge
We have now passed the 31 October 2018 deadline for filing income tax returns. If you were required to file a return, but have not done so, you would be exposed to a late filing surcharge. The surcharge is generally 5% of the tax if filed within 2 months (i.e. 31 December 2018), but increases to 10% if filed after 2 months. In order to minimise the penalty, you should strive to get your tax return in before 31 December 2018 – before the penalty increases to 10% of the tax.
2 . Home Renovation Incentive Scheme
The HRI scheme was introduced some years ago and enables homeowners and landlords to claim tax relief on certain types of repairs and improvements that are carried out on their homes by tax-compliant contractors and which is subject to 13.5% VAT. The HRI is given in the form of a tax credit at 13.5% of qualifying expenditure, which can be set against your income tax over 2 years.
The important point to bear in mind is that you cannot claim for any work carried out or paid for after 31 December 2018, unless planning permission is required whereby the deadline is extended to 31 March 2019. Therefore, where relevant, you should ensure the work is concluded by 31 December 2018.
3 . Small Gift Exemption
This is a gift tax exemption. It allows for you to make a Christmas gift of up to €3,000 to any individual in any year, and that person would not have to pay any tax on that gift. In addition, it does not used up a recipient’s lifetime gift/inheritance tax-free threshold. For example, you could give your brothers, sisters, kids, your kids spouses, non-blood relative up to €3,000 each, and there are no gift tax issues for them – no tax payable, no tax return and keeps the tax-free threshold intact.
4 . Tax-free benefit from employer to employee
Employers can give employees a voucher or gift up to the value of €500 tax free per annum. This can be used to motivate staff.
5 . Capital losses
If you have a capital gains tax liability on the sale of an asset during 2018, you might consider selling an asset that is currently in a loss position and doesn’t look like it will recover in value. The loss can be used to reduce the gain now; however, once 1 January 2019 arrives, such a loss cannot be carried back to the 2018 tax year (except in some death cases)
6 . Making additional Pension payments
In many cases, a company or business owner makes pension payments for staff. It is important that these pension payments are made before 31 December 2018 in order for the company or sole trader to benefit from a tax deduction in the accounts for 31 December 2018.
7 . Tax refund
There is a general 4-year rule in place for claiming refunds of tax – such as tax refund for medical expenses, college fees etc. The Tax Appeals Commission has been very strict in its imposition of this provision in the many cases that have been brought before it regarding the 4-year rule. The rule means that 31 December 2018 is the deadline for submitting claims for anything for the 2014 tax year. Once December 31 elapses, the potential refund for 2014 is lost forever.
8 . Income losses
There is also a time restriction for when you can claim a trading loss for income tax purposes. You have a 2-year time limit to claim a trading loss. Therefore for such losses incurred in 2016, the claim for the loss relief needs to be submitted by 31 December 2018.
9 . Claiming the annual Capital Gains Tax exemption
Each individual is entitled to achieve up to €1,270 capital gains tax-free in any given tax year. If you have a share portfolio, it may be worth while reviewing what investments are currently in a small gain position. You may consider selling them now tax-free to use up the annual €1,270 exemption. Once 31 December 2018 has expired, you lose the 2018 exemption – you cannot carry forward any unused element.
10 . Using up the 20% tax band
The maximum amount that a married couple can earn and pay tax at the 20% rate is €69,100 (€34,550 for a single person). Where discretion is possible in terms of varying one’s income, you should try to ensure that those levels are met. This may arise in situations of business owners paying themselves year end bonuses.
11 . Artists income
If you earn income as an artist (which includes books, music, plays, paintings, sculptures etc.), and if the income qualifies as artists exempt income, it is important that you make the claim with Revenue before the end of the year in which you earn the income. If you earn artists exempt income in 2018, the claim should be made by 31 December 2018. Otherwise, you may not be able to claim the exemption. The exempt amount is currently the first €50,000 of artist’s qualifying income.
12 . Delaying the payment of a capital gains tax liability
If you are in the process of selling an asset and you know you will incur a capital gains tax liability, it might be worth considering delaying the contract date of the sale until after 31 December 2018 to defer the payment of the tax. For any sales in December 2018, the tax is due by 31 January 2019. Whereas, if the sale is conducted sometime between 1 January and 30 November 2019, the tax payment date becomes 15 December 2019.
Please feel free to contact Adrian Farragher [email protected] in our Tax Department if you require any assistance on the above.