Use our checklist to curtail your tax bill

The month of February is always fairly frantic in the world of financial planning as taxpayers take steps to reduce their overall tax liability.

Tax is the single biggest drain on individuals’ wealth and using all available mechanisms to reduce one’s obligations is an important part of the financial planning process.

Working with your financial advisor, consider the following tools for curtailing your bill:

Maximise your tax-deductible contributions to a retirement fund. You have a few weeks left to do that.

The Income Tax Act allows taxpayers to invest up to 27.5% of their taxable income per year, capped at R350 000 per year, towards a retirement fund – including pension, provident and retirement annuity investments – on a tax-deductible basis meaning that at the end of the tax year, the taxpayer can claim back the tax on their retirement fund contributions.

To do: If you have multiple sources of income, ask your tax practitioner to assist with the calculation, keeping in mind that rental income, dividends from real estate investment trusts, gains derived from realising assets, and interest earned on investments are included in your taxable income.

Leverage the long-term tax benefits of your TFSA.

While your contributions to tax-free investments are not tax deductible, all interest income, capital gains and dividends earned in such vehicles are exempt from tax, meaning there are long-term benefits to investing in tax-free savings accounts, but contribution allowances remain low. It only really become meaningful after about 10 years.

To do: Check your statement to determine how much you have contributed towards your tax-free investment. Remember, if you contribute more than your annual allowable amount of R36 000, you will pay a tax penalty of 40%. If you are contributing towards multiple taxfree savings accounts, keep in mind that the annual contribution limit is cumulative across all tax-free investments.