Pre Year End Tax Planning

Our fiscal year end is 31 December so for all individuals, personal income tax returns are based on a year to 31 December. Companies and businesses may also have their own accounting year end, which in many cases is also 31 December. There are a number of tax reduction tips that can be used when coming up to an accounting year end or a tax year end, a few useful ones of which are as follows: 

Personal and Business Taxes 

  • At year end, thought should be given to arranging your business’ affairs to defer income and accelerate allowable deductions to as great an extent as possible. In particular, accelerate any proposed expenditure by the business in order to claim a tax deduction in the current year as opposed to the following year. This might arise in the case of planned expenditure such as repairs, pensions, etc, together with the acquisition of capital items qualifying for capital allowances.
  • You may have some control over your level of your taxable income in a year, for example where you can decide appropriate salary or dividends paid to you by a company under your control. In such cases, you should ensure that both you and your spouse are availing of the maximum 20% income tax rate bands. A similar view should be taken of passive income whereby investments should be structured so that the income stream is availing of the lower rates of Income Tax and USC.
  • Tax based investments, for example EIIS investments, must be made and certified as appropriate prior to the year end in order to avail of income tax relief for the year.
  • At year end, consideration should be given to increasing the pension contributions whereby the company can obtain a tax deduction for the contributions and the employee/director is not taxed on the contributions as a benefit in kind. It is important to note that the company must actually pay the pension contribution prior to the end of the accounting period to secure a corporation tax deduction in the period.
  • Gift vouchers up to a value €500 can be paid to employees once a year tax without the deduction of tax. This is a useful means of rewarding staff in a tax efficient manner.
  • If loans have been taken from your company and remains in place, a tax charge arises. If possible, you should give consideration to repaying such loans in advance of the year end.
  • If you are due a tax refund for 2016, for instance due to unclaimed medical expenses, the deadline for making an income tax refund claim is 31 December 2020.

Capital Taxes 

  • A payment of up to €3,000 each can be gifted to any individual, including all extended family members, with no CAT arising. Coming up to the year end, this can be very useful as part of an overall succession plan whereby significant sums can be passed on to the next generation tax free over a period of time.
  • In the current times of global uncertainty, it is likely that business valuations are much reduced. For any business owners who are considering passing on the business to family members or indeed involving employees, now may be an opportune time to proceed with same, particularly if it can be established that the business valuation has been adversely impacted. The valuation itself will need careful consideration but in the event that there is a reduced valuation, potential transfer taxes of CAT, CGT and Stamp Duty will also be reduced. A similar view can be taken in respect of other investments, for example shares or property, whereby tax savings can be made when passing at a time when values are reduced.
  • If a transaction resulting in a large capital gain is going to occur before the year end, consideration should be given to deferring it until the new tax year so as to defer the payment of CGT but also to avail of potential additional CGT losses that might arise next year that cannot be thrown back to the current year.
  • Where you have realised chargeable gains in a tax period, consider crystallising transactions which trigger a capital gains tax loss, for example in respect of shares or securities held which have significantly reduced in the current climate, or in the case of worthless investments, consider making a negligible value claim with the Revenue Commissioners before the year end.

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Return to The Tax Issue - Autumn / Winter 2020