5 Year-end Tax Moves That Will Blow Your Mind
There is a saying that in life the only thing that is certain is death and taxes and the month of December undoubtedly brings into mind the latter as it signals not just the closing of yet another year but with it the window of opportunity to save on tax payments.
For those scrambling to make last minute taxable income (also known as chargeable income – the amount on which tax is charged) reductions, here are a few smart year-end tax moves to consider:
Planning for retirement pays off
Every contributor to the Employee Provident Fund (EPF) is entitled to claim a tax relief of up to RM6,000 (including amount paid for a life insurance policy) making larger contributions a smart tax move. But with the year coming to an end, doing so may not be possible as EPF requires prior notice of your intention to make larger contributions.
Enter Private Retirement Scheme (PRS), a voluntary retirement scheme launched in July 2012. In addition to the RM6,000 tax relief you are entitled to claim for your contributions to EPF, contributing to PRS entitles you to claim up to RM3,000 tax relief. The icing on top of the cake? No statutory interval or contribution amount.
Hold that bonus
In order to grasp the practicality of this move, one has to first understand that tax on income is charged when it is paid; so arranging with your employer to have your bonus or any outstanding income deferred to the following year will ultimately lower your taxable income for this year.
Get tax deduction for your donations
Donations to charity and aid funds can help you lower your taxable income and in light of the destruction caused by Typhoon Haiyan that hit the Philippines on November 2, 2013, all donations made to the Malaysian Red Crescent Society will be exempted from tax.
Be sure to get your tax exemption receipt as proof of donation.
Maximise your tax deductions
The easiest (and most commonly used) way to reduce taxable income is to fully utilise tax reliefs of which you are qualified to claim. The key to this move is to know what qualifies for a tax relief and how much you can claim thus avoiding the mistake of unnecessarily spending more than you can deduct later on.
While not exhaustive, here are a few things you can consider purchasing before 2013 is officially over:
- Books, journals, magazines and publications: Deductible yearly up to RM1,000 and includes print and electronic publications. Newspapers and banned reading materials do not qualify.
- Computer: Deductible every three years up to a maximum amount of RM3,000.
- Sporting equipment and activities: Deductible every year up to RM300 for all sporting equipment and activities stipulated in the Sports Development Act 1997.
Claim tax relief for education
Planning for your children’s education can take a huge chunk off your income. Therefore, it is important that you know the ins and outs of the tax relief for parents who are saving for their kids’ education as soon as possible.
The tax reliefs available for education are as follows:
- Child education insurance policy – Maximum RM3,000
- Skim Simpanan Pendidikan Nasional – Maximum RM3,000
- Post graduate education – Maximum RM5,000
The above reliefs made up as whopping RM11,000 in total! For many parents who are already saving for their children’s undergraduate education, the relief available through these education savings add up to a maximum of RM6,000.
By purchasing the above and opting to pay the annual premium every December, you will able to get your investment return by April the following year in the form of tax deductibles.
While there is no way to avoid paying tax, one can certainly make wise decisions that can lead to savings in tax payment. The key is to have knowledge on the many saving options available.