Wednesday, 23 June 2021

Strengthen your finances by overcoming your fear of taxes

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Strengthen your finances by overcoming your fear of taxes

Thousands of South Africans enter the workforce without being tax literate. What’s more, many find tax issues simply too complicated and scary to even try and understand, says John Manyike, Head of Financial Education at Old Mutual. 

“The truth is that mastering the basics of paying taxes will empower you to manage your money better, and help you find perfectly legal ways to save money too,” he says. “Include taxpaying in your financial planning and take charge of your financial future. 

Old Mutual’s guidelines for stress-free taxpaying: Know Better in order to Do Better 

These guidelines do not constitute financial advice. Old Mutual encourages everyone to speak to a financial adviser for their specific financial circumstances. 

  • Learn how to check a payslip and how PAYE and other deductions work 
  • Know how to check that the PAYE rate you are paying is correct 
  • Know what income reportable and which expenses are deductible, and why this is the case  
  • Understand how to complete and submit a tax return form 
  • Know how to claim a refund if you’ve been overtaxed, and remember you can only claim a tax refund if you are registered as a taxpayer/ 
  • Know how to claim If you do a lot of business travel with a car allowance 
  • Know the difference between direct taxes and indirect taxes. Direct taxes include income tax, corporate tax, capital gains, and property taxes. Indirect taxes are not levied directly on taxpayers’ incomes, like VAT, for example, which is a tax on purchases 
  • Know how to keep records and establish what deductions can and cannot be claimed on taxes  
  • Know your rights and obligations as a taxpayer  
  • Always seek expert professional advice if you are unsure or confused 

Once you understand tax better, you also reduce the risk of making mistakes and increase the chances of identifying how to qualify for tax benefits.  

Useful tax tips to get the best out of tax 

  • Contributions to retirement funds are tax-deductible up to a limit of 27,5% of your taxable income or your remuneration, whichever is the greater, and up to a maximum of R350 000 per year. This limit applies to the total contributions you make to any pension, provident, or retirement annuity (RA) fund during the year. The tax deduction will always be limited to the actual contributions you made.  
  • You can top-up your retirement savings by contributing to a RA fund. Because you may not access your RA funds until you are 55 years old, this is a great way to save for your future while also reducing your annual tax bill. After 55, you can withdraw a third of the value of any RA, with the first R500 000 cash withdrawal being tax-free (provided you have not previously withdrawn any cash from a retirement fund).
  • Opening a tax-free savings account helps you earn interest on your money without paying tax on your earnings. You can invest up to R36 000 tax-free annually, with a lifetime limit of R500 000 per person.Income tax, dividends tax, or capital gains tax are not payable on these investments. Be aware that if you don’t use your full annual limit of R36 000 in one year, it cannot be carried over to the next year.
     
  • As a parent, you can open a tax-free account for your children, however, this may result in donations tax if you do not structure this option carefully (so speak to a tax expert before you do this). Keep in mind that any money you place in this account counts towards their annual and lifetime contribution limits. 
     
  • Joining a medical aid scheme means that you receive a monthly tax credit of R332 as the primary member, a further R332 for your first dependent, and R224 for each of your additional dependents.  These amounts are subject to change each year.
     
  • Keeping a logbook if you receive a travel allowance or drive a company car will enable you to claim travel deductions.
     
  • Claiming commission-related expenses if you are a commission earner allows you if your commission income usually makes up more than 50% of your total remuneration, to deduct operational expenses and claim for business travel.
     
  • You may claim expenses if you earn a non-salary income and are self-employed, allowing you to deduct all your business-related expenses against your business income.
     
  • If you have been forced to work from home because of the national lockdown in place due to the Covid-19 pandemic, you may qualify to claim certain domestic expenses incurred as a tax deduction, provided you meet SARS’ requirements.
     
  • Setting up a family, trust to provide for the financial security of your family and descendants may result in certain tax benefits if used properly.
     
  • Donating to a SARS registered charity or non-profit organization approved by SARS means that you can reduce your taxable income by doing a charitable deed, provided the non-profit organization issues you with a Section 18A certificate.

“Many people with the best of intentions end up dealing with tax problems due to errors or a lack of understanding. We believe “Know better so that you can do better”. Taking time to understand tax matters reduces the risk of spending time and money rectifying problems and enables you to maximize savings and retirement benefits. Understanding tax is a skill that everyone should have,” says Manyike. 

For more information visit the SARS website at www.sars.gov.za.  

Always contact your financial adviser for expert financial advice.