Outsmart The Taxman By Making The Most Of Tax Season
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Rita Cool, certified financial planner at Alexforbes talks about The start of the new year brings ‘tax season’ upon us – a good time to review your financial situation and use any available tax benefits before the end of the tax year on 28 February.
You have until this date to make additional contributions towards a retirement fund, a retirement annuity (RA) or a tax-free savings account (TFSA) to get the benefit in time for your next tax submission. The South African Revenue Service offers generous tax deductions when you make contributions to your RA, pension or provident fund. This means you can save more for retirement, and at the same time, pay less tax.
You can make contributions of up to 27.5% of your total taxable income, up to a maximum of R350 000 per year, and get the tax back. On a contribution of R100 000, if your tax rate is 30% this means that you get R30 000 back in tax and it only reduces your take-home income with R70 000.
There is no tax on growth in a retirement fund or a TFSA. This has a big effect on the long-term compounding of your investments compared to an after-tax investment, where you have to pay tax on growth as well. If you combine the tax-free growth with the tax benefits on the contributions you get money that works for you, not only you working for your money.
You have until this date to make additional contributions towards a retirement fund, a retirement annuity (RA) or a tax-free savings account (TFSA) to get the benefit in time for your next tax submission. The South African Revenue Service offers generous tax deductions when you make contributions to your RA, pension or provident fund. This means you can save more for retirement, and at the same time, pay less tax.
You can make contributions of up to 27.5% of your total taxable income, up to a maximum of R350 000 per year, and get the tax back. On a contribution of R100 000, if your tax rate is 30% this means that you get R30 000 back in tax and it only reduces your take-home income with R70 000.
There is no tax on growth in a retirement fund or a TFSA. This has a big effect on the long-term compounding of your investments compared to an after-tax investment, where you have to pay tax on growth as well. If you combine the tax-free growth with the tax benefits on the contributions you get money that works for you, not only you working for your money.
