Yahoo Finance 4 Ways To Reduce Your Income Tax In 2017
Colourful decorations line every nook and cranny of Orchard Road and other locations around Singapore. Even the MRT system is taking some time off to recuperate. Whether offline or online, you cannot miss the fact that the festive season is in full swing.
As we count down to the end of 2017, its worth remembering that the window for reducing our tax bill for 2017 is closing. Though the deadline for filing our personal income taxes is April 2018, the tax bill we are liable for depends on our income, expenditure and deductions from 1 January 2017 to 31 December 2017.
Thus, you can still (legally) reduce your income tax, provided you complete these actions by 31 December 2017. Time is short, so let’s get started.
Trying To Reduce My Income Tax: Should I Even Bother?
It might seem like a no-brainer, but its actually a valid question. The government gives deductions on income tax to encourage certain behaviours, such as preparation for retirement, giving to charitable causes, and upgrading oneself.
However, if taking these actions do not substantially change the tax bracket you are in, or if the savings isn’t worth the opportunity cost to you, then perhaps you’ll decide that you’re better off just paying the slightly higher tax bill.
How Is My Income Tax Calculated?
Here are the basics of calculating your income tax for 2017.
Assessable Income:
Assessable income refers to the total income you earn after the deduction of allowable expenses and approved donations. For most of us, our assessable income would comprise mainly of the salary received from your job. It can also include the income received from part-time or freelance jobs, or rental income from properties.
Not all income earned in Singapore are considered assessable income. For example, earnings from lottery are not taxable. Neither are capital gains made from stocks or property investments.
The table below is a non-exhaustive list of what are the taxable and non-taxable items.
Chargeable Income:
Chargeable income refers to the total amount that you would be taxed after deducting personal reliefs from your assessable income. As your chargeable income increases, you can expect your income tax payable as a percentage of your total income to increase.
Note: People commonly (and mistakenly) use the term “Chargeable income” interchangeably with “Assessable income”.
Source: IRAS
If you are looking at the income tax that you are expected to pay for 2017 and thinking that the amount looks rather high, it’s not too late to take action.
#1 Personal Tax Reliefs
This first tax-saving measure does not require you to do anything that you’ve not already done, except perhaps to gather the necessary supporting documentation.
You should study the comprehensive list of items that provides for tax relief on IRAS’s website. Here are some highlights you.
There are NSman reliefs for the NSmen themselves as well as spouse or parents of NSmen. If you were called back for reservist training in 2017, you will enjoy a tax relief will be $3,000. Even if you were not called back for reservist training, you still get a tax relief of $1,500. For spouse and parents of NSmen, they can claim $750 in tax reliefs.
If you are currently furthering your studies while working, there is a great chance that you would be able to reduce your income tax by claiming the cost you incur for your studies against your taxable income. These costs include examination fees, course fees and tuition fees. You may claim up to $5,500 per annum.
Deductions on Employment Expenses
If you’re an employee who isn’t reimbursed for entertainment or transportation expenses, you can claim deductions under this category, so long as you keep proper records, which have to be submitted upon request by IRAS.
If you have parents (or grandparents) whom you are supporting, you can claim tax relief, so long as you meet specific conditions as detailed on the IRAS website.
The biggest condition is the fact that your dependant cannot have an income exceeding $4,000 per annum (or about $330 per month). These include tax-exempt income such as those from pension schemes, dividends or bank interest.
You can claim relief of two times the amount of foreign domestic worker levy you paid in the previous year for one foreign domestic worker. If your levy was $3,180 last year, the relief you would enjoy would be $6,360.
Cost Of Renting Out Your Property
While you are required to pay tax based on the income you derived from the rental of a property, you are also allowed to claim expenses you incur for renting it out. Claimable expenses include the interest you paid for the housing loan you took, property tax, premiums paid on fire insurance, monthly management fee, repair cost, agent commission and Internet and utility charges.
#2 Voluntary CPF Top-Ups
We all need a plan to save for our retirement and our loved ones. If your plan is to stash money in a savings account or invest, you may be better off topping up your, and/or your loved one’s CPF Special Account.
Why? Every dollar contributed through voluntary CPF top-ups makes you eligible for a dollar-for-dollar tax relief for your income tax.
This means you enjoy tax reliefs of up to $7,000 on cash top-ups to your SA, and a further $7,000 tax relief on cash top-ups to your loved one’s SA account. By lowering your chargeable income by up to $14,000, you may fall into a lower tax bracket and enjoy even greater tax savings.
In addition, your money is now in a virtually risk-free investment instrument that gives you 4% per annum, without any fees!
Read Also: 5 Reasons Why You Should Top-Up Your CPF Special Account During This Year-End
#3 Contribute To A Registered Tax-Deductible Charity
A donation made to an approved institution would allow the donor to claim tax relief of 250% of the amount donated. As we’ve observed previously, if you are in a high-income bracket, making tax deductible donations to approved-charitable institutions will really help you bring down your chargeable income. Not so much for the average Singaporean.
If you’re earning $30,000 a year and you give 10% of your income ($3,000), your tax bill will be reduced by just $150. This is about 10 times lesser than what the super wealthy person would have received for giving the same amount, understandably because the percentage of tax they need to pay is much higher as well.
All donations must be made before the year end for you to claim your tax relief for 2017.
Read Also: Do Rich People Actually Save Money Donating To Charities In Singapore?
#4 Use the CPF Supplementary Retirement Scheme
The Supplementary Retirement Scheme (SRS) is part of the government’s multi-pronged strategy to address the retirement needs of Singaporeans. Contributions to SRS accounts are voluntary and are eligible for a dollar-for-dollar tax relief. The annual SRS contribution cap is currently set at $15,300 for Singapore citizens and permanent residents, and $35,700 for foreigners.
Contributions to the SRS account can be used for investing. They can subsequently be withdrawn to provide an additional source of income once members reach our statutory retirement age of 62. For example, an individual with a taxable income of $60,000 will save about $1,070 in his income tax when he contributes $15,300. This saving is immediate.
Read Also: Supplementary Retirement Scheme – 4 Things You Need To Understand Before Opening An SRS Account
Act Now, Don’t Procrastinate!
Some of the ways we shared have to be executed before the end of the year for you to earn tax savings. Others can be claimed as long as you keep supporting proof of the costs you incurred. Either way, take action today and welcome the new year with peace of mind.
Know someone who will benefit from optimising their personal income taxes? Do share this article with them! It’s the season of sharing and giving, after all. Happy holidays!
The post 4 Ways To Reduce Your Income Tax In 2017 appeared first on DollarsAndSense.sg.
