Tax Planning is about putting your hard earned money to good use instead of everything going to the government. It doesn’t mean not paying your taxes, it just means being smart about where you place your money to gain maximum benefits.
The most important aspect to remember about tax planning is that it is no different from financial planning. Choose an option that fits into your overall financial plan; and not because it is a scheme sold by your best friend. Be cautious of claiming or structuring transactions the same as friends without professional advice – you might end up in a tax mess. So often it is the tiny details you might have overlooked that make a difference.
Proper tax planning is not something that can be done only when you submit your tax return – it is an on-going process. In order to save money you need to consider the tax consequences of every transaction or investment you make.
Every individual has a unique situation and should therefore ask a professional for advice.
Some tax details everyone should know:
Income tax: South Africa has a progressive income tax system. This means that the rich should pay more than the poor. Thus, the more you earn the higher the percentage tax you will pay.
Individual income tax: Rates in South Africa range from 18% (for income below R160 000 per annum) to 40% (for amounts over R617 000per annum).
Individual income tax thresholds: Individuals under 65 years of age with an income below R63, 556 per annum, don’t have to pay income tax. If you are 65 years and older, but under 75 years of age, your taxable income starts from R99, 056. If you are 75 years and older, your taxable income starts at R110, 889.
Medical Aid Contributions: Tax credits may be claimed for medical aid contributions by the taxpayer, if under the age of 65. Thus not a deduction against taxable income, except if you’re over 65; the tax due will be reduced with the credit. The taxpayer and first dependant each are entitled to a credit of R230 per month, additional dependants claim R154 credit per month.
The year 2014 just might be your year for finding solutions to financial hardship. Make sure you are tax wise and ask your tax practitioner about possible tax allowances with new ventures.
Chrisna Roberts is a partner at accounting, tax and advisory company Wallrich, based in Randburg.
