Tax Season: How to Maximise Tax Benefits

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Tax Season: How to Maximise Tax Benefits

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The end of the 2021 tax year, 28 February, is nearly upon us. This means it’s your last chance to take advantage of the tax benefits available to you.

They range from deferring tax payments to benefit you in the short term to optimising tax-free investments for the long term.

Let’s take a deeper look at how you can maximise your tax benefits before the end of the 2021 tax year.

Tax-Free Investment Account

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Opening a tax-free investment account is something every South African should be doing. Not only does it allow you to invest across multiple financial products, but all your returns are completely tax free!

This was introduced by the government in 2015 as a means to encourage people to save money. The investment amount is capped at a certain amount each year.

In the 2020 tax year, the cap was set at R33 000 per person. For the 2021 tax year, the cap was increased to R36 000. However, bear in mind that the lifetime limit of R500 000 per person remains.

So, if you haven’t reached your yearly investment cap, now is the time to take advantage of this tax-exempt investment opportunity. If you already have a tax-free investment account, then ensuring you’ve contributed your yearly amount is a wise move.

However, if you do not have an account, we recommend that you discuss this opportunity with your financial advisor. We can assess whether this type of long-term investment suits your current income level and debt situation, and aligns with your investment goals.

Contact us and we’ll take a look at your portfolio and advise you on the best way forward.

Retirement Funds

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Retirement planning is an important part of the financial process. It ensures an individual’s long-term financial health, but it can also provide great tax benefits in the short term.

One such advantage involves increasing the amount you contribute to your annual retirement investment. This can ultimately decrease your tax burden and increase your tax return.

An individual is permitted to invest up to 27.5% of their taxable income into their retirement fund per year. In addition, by making these extra contributions, you decrease the overall amount of tax that you end up paying each month. You’re essentially investing in your future using pre-tax money and also reducing the amount of tax you pay to SARS.

Not only is this a part of a major saving’s incentive, but it also provides tax return benefits to you in the short term. You’ll be able to claim back more on your annual tax returns by maximising your retirement contributions.

Section 12J Investments

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As an investor, it’s incredibly satisfying bringing in financial gains for you and your family. Investing in venture capital companies (VCCs) takes that sense of satisfaction to another level by encouraging taxpayers to invest in local businesses. The provision of tax incentives to individuals and the streamlining of the claims process has made it much easier for individuals to invest in the local economy.

SARS is now offering you the opportunity to claim a 100% tax deduction from your taxable income, provided you have invested in a VCC for five consecutive years. This began as a means to foster investment into small and medium-sized entities, which form a major part of the South African economy. Section 12J investments are a great way to support local, domestic businesses and to benefit from significant tax returns.

Make sure to discuss this with your financial adviser before making this type of financial commitment. There is a lot more to investing in a VCC than you’d expect, especially in comparison to a tax-free investment or retirement fund.

Expand Your Benefits Before 28 February

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It’s not too late to take advantage of these simple tax benefits. There’s still time to top up your tax-free investment account and your retirement fund, if you haven’t already reached your yearly cap.

It’s also never too late to begin your investing journey. There are many options available, each with their own unique tax benefits.

We are here to help you get the most from your hard-earned money while working toward your short and long-term goals. Tax incentives can provide the extra motivation you need to invest in your today and start putting away for your future.

Please do not hesitate to get in touch to find out how to make your money work for you.

+27 11 839 2302