5 Tax boxes to tick before the end of February

5 Tax boxes to tick before the end of February

Last updated on 5th December, 2019 at 03:52 pm

The tax return deadline is just around the corner – have you considered these ways to save cash before the cut-off?

1. Start with short-term savings

Consider a money market account, says Marc Sevitz, director and CFO of TaxTim, an online tax tool freely available to Sanlam Reality members. The interest threshold could work in your favour tax-wise, if you’re smart about it.

“Cash put into a money market account could also wind up being exempt from tax if the interest generated falls under the threshold,” he explains. SARS allows an annual interest exemption of up to R23 800 per annum for taxpayers (under age 65) and R34 500 (for over age 65).

Vimlesh Rajbansi, a Sanlam financial planner, recommends it as a suitable solution for short-term, tax-efficient savings. “The benefits to you, the investor, are that it is accessible immediately, and has no exposure to equities, hence a more stable return, around 3%-8% per annum, depending on the balance of the funds invested,” she explains.

Find out which tax-free savings are best suited to your life stage here.

2. Invest where it matters

Where is the most tax-efficient place to invest your cash? “From a tax perspective, the most immediately beneficial savings vehicles would be a retirement annuity (RA) or some form of pension or provident fund through your employer,” suggests Sevitz. Why? As a taxpayer, you will receive a tax deduction for the contributions you make towards the annuity. “This lowers your taxes, which means less is owing to SARS, so more in your pocket, or more for saving each year,” he explains. “Regardless of age, this benefit is the same for everyone.” Here are 10 ways to save tax with a retirement annuity.

Jyoti Gopee-Mothie, a financial planner at Pinnacle BlueStar, adds: “Maximise on the annual limit of 27.5% of taxable income for your pension or provident fund or RA contributions.”

3. Be smart with your bonus

It’s tempting to splash out as soon as that 13th cheque lands in your account, but think about future you and how you can enjoy life even more if you hang on to that money for long-term growth.

“Use some of your December salary to top up your RA with a lump sum payment,” recommends Gopee-Mothie. “Most clients are unaware that your RA can be a blend of recurring monthly contributions and a lump sum closer to the end of February.”

Sevitz concurs: “Put some cash into your RA, then for the next tax year, you will have a tax deduction which may result in a refund of some money from SARS.” Learn about other smart things to do with your bonus here.

4. Consider tax-free donations

Gopee-Mothie also suggests an often-forgotten way of saving when it comes to tax. According to SARS, donations made up to R100 000 as an individual are tax-exempt. Bear in mind, however, that the donation needs to be formally declared by completing an IT144 form, to be submitted to SARS after you’ve made your donation.

These donations include those between spouses, and towards approved public benefit organisations. Learn more about how this works here.

5. Don’t forget tax-free investments

The beauty of tax-free investments is that you don’t pay tax on any income earned from the investment. “This can take the form of interest, capital gains or dividends,” explains Sevitz. “Taxpayers can contribute up to R33 000 a year in total without paying penalties,” he continues.

But be careful, because you can be severely penalised if you exceed this threshold. “Anything over that is subject to a tax charge of 40%,” he cautions. Also consider the lifetime limit of R500 000 per individual.

So, which one to choose? Rajbansi offers some guidance: “The best platforms to consider here are unit trusts, like SCI (Sanlam Collective Investments), and these are accessible within 48 hours. What’s more, they offer very low costs, unlike an endowment.”

Need help with tax filing? TaxTim takes the work out of it for you!

“The best solution to remain compliant under the SARS spotlight is to consult with a financial planner who will provide you with comprehensive advice on tax savings over the short, medium and long term,” says Rajbansi. To set up a meeting with a financial planner, click here.

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