It helps to sort your tax well in advance
Being well prepared and handling your tax in advance can benefit you, writes Martin de Kock
Every year, the same people who gave the practitioners sleepless nights vow to be better prepared for the next season. They promise to have all their documents in on time, to better structure their income and their life to be more tax-efficient and to try to save money.
But like clockwork, these same individuals arrive mid-February with boxes of paperwork and a bewildered look. When the dust settles, they often quip they don't have to be any better prepared, because their trusty tax practitioner always makes the deadline.
So, is there a benefit to being well prepared and handling your tax in advance?
Learning to plan and budget
When you commit to handling your tax well in advance, you start thinking ahead. You take a long-term view of your income and future prospects and start taking personal responsibility for making your plans work.
Even the best tax practitioner in town cannot streamline every last-minute tax application. They do the best they can, but it doesn't beat good, upfront tax planning.
For instance, you can claim the contribution to your retirement annuity every month from your pay-as-you-earn tax, assuming your payroll administrator is prepared to take your RA contribution into account when preparing the monthly payroll.
By doing this, you don't need to wait until after the tax year-end to claim your refund back from the South African Revenue Service. You can reinvest the monthly saving into a flexi home loan (access bond or revolving credit facility), a tax-free savings account (don't exceed your annual contribution limit of R33 000) or even a money market account and save or earn interest over the period.
The option of claiming the tax benefit on your retirement payments every month is available to you regardless of whether you are self-employed or draw a salary.
Ensure your contributions to your retirement funds collectively are fully utilised at 27.5% of the bigger of your taxable income or gross remuneration (limited to a maximum of R350 000), which means you save the tax at your tax rate on these contributions and earn tax-free growth on retirement funds.
Structuring your life better
This may sound like simple advice, but it is surprising how many people do not structure their lives to be more tax-efficient.
As a business owner or entrepreneur, you can claim several business costs - check with your practitioner - through your business, achieving a reduced tax liability. Keep in mind a business tax rate is 28%, while your personal rate could be as high as 45%.
You should also keep in mind that business owners are often provisional taxpayers and you should set money aside to pay your provisional tax, or you could face penalties and interest on the outstanding payments.
Lastly, you should always plan. RAs are the best way of saving on your tax bill and you structure your income and expenses in such a way that the maximum is deducted every month, before you pay your tax.
Commit to a plan
Remember that every person remains ultimately responsible for his or her own tax return. Giving your tax practitioner your tax information too close to the submission deadline does not allow time for following up on any outstanding or incorrect information, and you may end up paying more tax than you planned, or worse, you may be fined. By committing to preparing your taxes well in advance this year, you will not only save some money or even earn a bit of interest on your savings, you will also see your approach to money change and your chance of future wealth dramatically improve.
• De Kock is a director of Ascor Independent Wealth Managers